Merge Healthcare Misses on Q1 Revs, Cuts 2014 Earnings View - Analyst Blog
May 01 2014 - 3:00PM
Zacks
Merge Healthcare
Incorporated (MRGE) reported first-quarter 2014
adjusted net income per share of 3 cents, bouncing back from a
loss of 3 cents incurred in the year-ago quarter. Reported net loss
of $0.32 million or break-even results per share in the first
quarter compared favorably with the year-ago net loss of $6.48
million or loss of 7 cents per share.
Quarter in
Detail
Total revenue in the reported
quarter declined 19.9% year over year to $50.9 million. On a pro
forma basis, sales declined 20.2% year over year to $51.1 million,
lagging the Zacks Consensus Estimate of $52 million. Of the total
revenue, 66% was generated from subscription and other predictable
sources. Subscription backlog grew 23% 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 (29.5% of total
sales in the quarter), Professional services (20.5%), and
Maintenance and EDI (49.9%). Maintenance and EDI registered
revenues of $25.3 million, down 9.2%. Likewise, the Software and
others segment also experienced a decline of 36.0% to $15.1
million. Revenues in the Professional services segment plunged
13.5% year over year to $10.5 million as well.
Operational
Update
Total costs (excluding depreciation
and amortization) fell 26.4% year over year to $19.4 million.
First-quarter adjusted gross margin expanded a massive 332 basis
points (bps) from the year-ago quarter to 61.9%.
Sales and marketing expenses were
down 22.8% year over year (to $8.0 million) while product research
and development expenses declined 11.1% (to $7.6 million) on a
year-over-year basis. General and administrative expenses, however,
increased 3.4% from the year-ago quarter (to $7.4 million).
However, adjusted operating profit stood at $8.5 million, down
23.9% year over year leading to an 88 bps contraction in adjusted
operating margin. The adjustments excluded restructuring and
acquisition-related costs, depreciation and amortization.
Financial
Update
Merge Healthcare exited the quarter
with cash (including restricted cash) of $19.8 million, compared
with $19.7 million at the end of 2013. Cash generated from business
operations was $9.8 million versus $8.7 million in the year-ago
quarter.
2014 Outlook
The company provided an update on
its guidance for 2014. Merge still expects net sales in 2014 to
remain in the range of $212–$225 million (essentially flat with the
2013 number), leading to adjusted net income per share in the range
of 9 cents to 13 cents, down from the earlier range of 16 cents to
21 cents. The Zacks Consensus Estimate for revenues of $214 million
remains near the lower end of the guided range.
Our Take
Poor first-quarter top-line results
combined with a declining operating margin and a lowered earnings
outlook for 2014 at Merge Healthcare continue to disappoint us. 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.
Zacks Rank
Currently, the stock carries a
Zacks Rank #4 (Sell). Some of the better-ranked stocks in the
broader medical industry are Cardinal Health, Inc.
(CAH), Hologic Inc. (HOLX) and The Cooper
Companies Inc. (COO), all carrying a Zacks Rank #2
(Buy).
CARDINAL HEALTH (CAH): Free Stock Analysis Report
COOPER COS (COO): Free Stock Analysis Report
HOLOGIC INC (HOLX): Free Stock Analysis Report
MERGE HEALTHCAR (MRGE): Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research
Hologic (NASDAQ:HOLX)
Historical Stock Chart
From Aug 2024 to Sep 2024
Hologic (NASDAQ:HOLX)
Historical Stock Chart
From Sep 2023 to Sep 2024