Merge Healthcare (MRGE) recently announced preliminary results for the second quarter of fiscal 2009. The company expects revenue between $15.0 million and $15.5 million, an increase of roughly 13% to 17%, respectively over the prior year quarter.
Operating income is expected between $3.7 million and $4.4 million, compared to an operating loss of $18.3 million in the year-ago quarter. Net income ranges between $0.1 million and $0.8 million, versus net loss of $18.2 million in the year-ago quarter. EBITDA is expected to be in the range of $2.4 million to $3.1 million, compared to a loss of $14.0 million in the prior year quarter.
Merge Healthcare is a healthcare software and services company focused on integrating radiology workflow to improve productivity, profitability and patient care by fusing business and clinical workflow, and intelligently managing and distributing diagnostic images and information throughout the healthcare enterprise. The company is a leader in transforming film-based radiology images into modern digital images for distribution and diagnostic interpretation.
Merge has recently offered to purchase all outstanding shares of North Carolina-based etrials Worldwide Inc. (ETWC) that provides clinical trials software and services. The offer is a mix of cash and stock valued at over $18.3 million.
The shareholders of etrials Worldwide will receive $0.80 plus 0.3448 shares of Merge for each share of etrials they hold. The exchange offer will expire on July 14. The combined Merge-etrials entity will be able to provide contract research organizations and clinical trial sponsors configurable systems with both critical imaging technologies and electronic clinical capabilities.
Merge Healthcare was badly affected by a cash crunch in the past which was overcome by a much-needed cash infusion of $20 million from Merrick RIS LLC in May 2008. The company was also impacted by management turnover, accounting miscues, and several legal issues.
However, the third quarter of 2008 was the turning point, thanks to the cash infusion and the cost reduction initiatives (headcount reductions). The company has since reported three consecutive quarters of net income.
Merge Healthcare also entered an alliance with a leading healthcare IT provider in China in May 2009. The Chinese government’s recent approval of $20 billion for healthcare IT as part of its healthcare reforms should augur well for Merge.
The U.S. Congress’ approval of more than $20 billion in spending on health-information technology is also likely to benefit the company. However, majority of the spending in the U.S. will be felt between 2011 and 2015.
We think that this will boost the company’s topline from 2011 onwards. Based on the company’s performance in the first quarter of fiscal 2009, we have a ‘Hold’ rating for the Merge Healthcare stock.
Read the full analyst report on “MRGE”
Read the full analyst report on “ETWC”
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