Merge Healthcare CEO Resigns After Disappointing Q2 Results

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Jeffery A. Surges has resigned as CEO and director of Chicago-based Merge Healthcare Inc. following another disappointing financial performance in the company’s second quarter.

He is being replaced by Justin C. Dearborn, who had previously served as Merge’s CEO before moving on to other roles in the company. Another Merge executive, Nancy Koenig, was promoted to chief operating officer from her position as executive vice president of Operations and also was elected to the Board of Directors to fill the vacancy created by Surges’ resignation.

Merge reported that its second-quarter net loss widened to $28.1 million, or 30 cents a share, down from $5.9 million, or 6 cents a share in the year-ago period. Revenue fell to $57.2 million, down from $62.9 million in the second quarter of 2012.

In the earnings call with investors, Dearborn apologized for the results on behalf of the Board and Merge chairman and largest shareholder, Michael Ferro.

“These results are unacceptable and we are working day and night to turn this situation around,” he said.

Dearborn explained the disappointing results as largely being due to a miscalculation by the company leadership following the acquisition of AMICAS in April of 2010.

“Our plan was to grow our sales and marketing teams and focus on large enterprise sales or system-wide deals with longer sales cycles and lumpier but large upfront revenue,” he explained. “While we have had some success in the past and expect even more in the future, the market did not develop as fast as we had anticipated and no longer justifies the cost structure that we built.”

Last September, Merge’s leadership retained an investment banking firm to solicit offers for the public company, but judged the offers it got as too low and took the company off the table.

Dearborn (in the conference call) and Ferro (in a company press release) said they still believed there were opportunities in the imaging technology market that Merge was positioned to take advantage of, but investors seem to have doubts. On Friday, the company’s stock dropped more than 40 percent.