Merge Puts Positive Spin On Low Q3 Numbers

Twitter icon
Facebook icon
LinkedIn icon
e-mail icon
Google icon

After a second quarter that was so bad, Merge’s own CEO, Justin Dearborn, called the results “unacceptable” and apologized to investors, the company’s third quarter results were less dramatic, but still not very inspiring to investors.

Total pro forma revenue was $57.7 million in Q3, compared to $61 million in the prior year, the company reported. Adjusted EBITDA for the third quarter of 2013 was $7.2 million, representing 13% of pro forma revenue for the quarter, compared to $12.5 million and 21% in the third quarter of 2012 with the change primarily a result of an unusually high mix of hardware sales (with lower margins) and $2.3 of non-cash charges in the third quarter of 2013.

Although the company slashed its sales force after the poor Q2 results to improve profitability, Dearborn noted in the conference call with investors that the smaller sales force had not hurt Merge’s ability to compete. It retained its leadership position and even landed two additional large contracts in the radiology market in the quarter: Sinai Health System in Chicago and Imaging Healthcare Specialists in San Diego.

Rather, the weak earnings were mainly due to larger market factors, Dearborn noted. The third quarter is traditionally a low quarter for technology spending, he told investors, and this year, hospitals had to contend with an $11 billion cut in Medicare reimbursements due to sequestration and regulatory mandates like the conversion to ICD-10 coding and meeting Meaningful Use Stage 2 requirements for electronic health records. On the outpatient radiology side, the consolidation of smaller radiology practices into larger health systems led to many delays in purchasing decisions.

However, Dearborn saw a promising future for investors who stick with the company. The trend toward making health care data more interoperable would benefit Merge, he noted, because it has cloud based storage and vendor neutral archive (VNA) solutions that are important in making true interoperability and sharing of imaging data possible.

“According to industry data, the total combined market opportunity for images sharing is approximately $300 million,” Dearborn noted. “Since 2012, Merge has seen 39 new clients adopt iConnect Access to image-enable their EMR. With enhanced sharing solutions coming out in early 2014, we expect to see healthy growth in this market.”

The company also used its strong cash collections in the quarter voluntarily pay down $6 million of its debt.

Read the Merge Q3 press release.