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Company also issues guidance for 2011

Merge Healthcare Incorporated , a health IT and interoperability solutions provider, announced financial results for the third quarter of 2010. Revenue grew to $45.2 million ($48.5 million on a pro forma basis) in the quarter, compared to $16.9 million in the third quarter of 2009.

"I am very proud of our third quarter performance. As a leader in the health IT space, Merge is well positioned to take advantage of a great market opportunity being presented by the transformative electronic health record and interoperability adoption currently underway. As a result, we are providing 2011 guidance of a pro forma revenue range of $235 - $240 million with an adjusted EBITDA of approximately 23%," said Michael W. Ferro, Jr., Chairman of the Board.

Merge Healthcare also announced today that its board of directors has named Jeffery A. Surges to serve as Chief Executive Officer. Mr. Surges was most recently the President of Sales at Allscripts Healthcare Solutions, Inc., a Merge partner. Mr. Surges has 20 years of experience managing high-growth technology companies in the healthcare and information services industries, including his role as the President and Chief Executive Officer of Extended Care Information Network, Inc. (ECIN) before that firm's December 2007 sale to Allscripts.

"I am extremely pleased to be joining the Merge team. These are unprecedented times in healthcare IT. The adoption of electronic health records is creating a new wave of growth in interoperability, connectivity, and electronic commerce in healthcare," said Mr. Surges. "As a member of the Merge board since June of 2010, I have been fortunate to see the foundation Merge has put in place to capitalize on these trends and realize our organic growth goals."

Justin Dearborn will assume the newly created role of President and will focus on growing Merge Healthcare 's international business.

Quarter Results:

Results compared to the same quarter in the prior year are as follows (in millions, except per share data):

                                            Q3 2010     Q3 2009
                                            ----------- -----------
Net sales                                    $45.2       $16.9
Operating income (loss)*                       3.1        (0.2)
Net loss available to common shareholders*    (5.0)      (0.9)
Net loss per diluted share                  $(0.06)    $(0.02)
Cash balance at period end                    40.0        16.9
Cash flows from operating activities           6.7         4.5

Operating and net income in the third quarter of 2010 include acquisition-related and restructuring costs of $2.1 million, compared to $2.6 million in the third quarter of 2009. Net loss available to common shareholders includes net interest expense of $6.4 million in the third quarter of 2010, compared to $0.8 million in the third quarter of 2009.

Pro forma results and other, non-GAAP measures compared to the same quarter in the prior year are as follows (in millions, except percentages and per share data):

                                        Q3 2010    Q3 2009
                                       -------  -----------
Pro forma results
Net sales                                $48.5        $45.7
Adjusted net income                        3.2          0.5
Adjusted EBITDA                           13.0          9.6
Adjusted net income per diluted share    $0.04        $0.01
Adjusted EBITDA per diluted share        $0.15        $0.14
Non-GAAP and other measures
Recurring revenue as % of net sales      > 65%      > 65%**
Non-recurring backlog at period end      $48.6  Unavailable
Days sales outstanding                      97         86**

** Historic Merge only amount.

A table reconciling GAAP net income to adjusted net income and adjusted EBITDA is included after the financial information included in this press release.

Year-to-Date Results:

Results for the current year-to-date compared to the prior year, are as follows (in millions, except per share data):

                                                       2010       2009
                                                    ---------- ----------
GAAP results
Net sales                                            $94.2      $47.6
Operating income (loss)                              (10.7)      7.5
Net income (loss) available to common shareholders   (39.1)      2.4
Earnings (loss) per diluted share                   $(0.49)    $0.04
Pro forma results
Net sales                                           $139.6     $114.8
Adjusted net loss                                     (1.6)     (4.4)
Adjusted EBITDA                                       30.0       24.2
Adjusted net loss per diluted share                 $(0.02)   $(0.07)
Adjusted EBITDA per diluted share                    $0.36      $0.36

Explanation of Non-GAAP Financial Measures

Merge Healthcare reports its financial results in accordance with generally accepted accounting principles, or GAAP. To supplement this information, this press release includes certain non-GAAP financial measures. These measures are not in accordance with, or an alternative to, GAAP and may be different from non-GAAP measures used by other companies. A quantitative reconciliation of GAAP net income available to common shareholders to adjusted net income and adjusted EBITDA is included after the financial information included in this press release.

Management believes that the presentation of non-GAAP results, when shown in conjunction with corresponding GAAP measures, provides useful information to it and investors regarding financial and business trends related to results of operations, because certain charges, costs and expenses reflect events that are not essential to recurring business operations. In addition, management believes these non-GAAP measures provide it and investors useful information regarding the underlying performance of the post-merger business operations when compared to the pre-merger results of the combined Merge and AMICAS businesses (including considerations of certain significant acquisitions made by each company). Purchase accounting adjustments made in accordance with GAAP can make it difficult to make meaningful comparisons of the underlying operations of the business without considering the non-GAAP adjustments that are provided and discussed herein. Further, management believes that these non-GAAP measures improve its and investors' ability to compare Merge's financial performance with other companies in the technology industry. Management also uses financial statements that exclude these charges, costs and expenses for its internal budgets. While GAAP results are more complete, these supplemental metrics are offered since, with reconciliations to GAAP, they may provide greater insight into our financial results. Management does not intend the presentation of these non-GAAP financial measures to be considered in isolation or as a substitute for results prepared in accordance with GAAP.

Additional information regarding the non-GAAP financial measures presented is as follows:

Pro forma revenue consists of GAAP revenue as reported, adjusted to reflect the acquisition of AMICAS as if it had occurred at the beginning of the respective periods presented and to add back the acquisition related sales adjustment (for all significant acquisitions) booked for GAAP purposes. Recurring revenue is generated from agreements that generally contain a stated annual amount and which we have a high success rate of renewing each year. More specifically, this includes revenue generated from our DICOM toolkit and eFilm Workstation(R) product lines, long-term contracts associated with our SaaS related offerings, and EDI and maintenance contracts across the entire business. Non-recurring revenue backlog represents revenue that we anticipate recognizing in future periods from signed, firm customer orders as of the end of the period presented. Non-recurring revenue is comprised of all other sources of revenue not included as recurring revenue, primarily from perpetual software licenses, hardware and professional services (including installation, training and consultative engineering services). Merge started to track non-recurring revenue backlog during the first quarter of 2010 and was able to calculate this metric as of December 31, 2009. Comparative information prior to the end of the fourth quarter of 2009 is unavailable. Adjusted net income consists of GAAP net income available to common stockholders, adjusted to reflect the acquisition of AMICAS as if it had occurred at the beginning of the respective period presented and, to the extent such items occurred in the periods presented, excludes (a) one-time preferred stock deemed dividend at issuance date, (b) impairment of investments, (c) sale of non-core patents, (d) acquisition-related costs, (e) acquisition-related severance not qualifying for restructuring, (f) restructuring and other costs, (g) stock-based compensation expense, (h) acquisition-related amortization, and (i) acquisition-related cost of sales adjustments and adds back (j) the acquisition-related sales adjustments. Adjusted EBITDA adjusts GAAP net income available to common stockholders for the items considered in adjusted net income as well as (a) remaining depreciation and amortization, (b) net interest expense, (c) non-cash preferred stock dividends and (d) income tax expense (benefit).

Management has excluded certain items from non-GAAP adjusted net income because it believes (i) the amount of such expenses in any specific period may not directly correlate to the underlying performance of business operations and (ii) the adjustment facilitates comparisons of pre-merger results to post-merger results. In addition, the following adjustments are described in more detail below:

Acquisition-related amortization expense is a non-cash expense arising from the acquisition of intangible assets in connection with significant acquisitions. Management excludes acquisition-related amortization expense from non-GAAP net income because it believes such expenses can vary significantly between periods as a result of new acquisitions and full amortization of previously acquired intangible assets. Stock-based compensation expense is a non-cash expense arising from the grant of stock awards to employees and is excluded from non-GAAP net income because management believes such expenses can vary significantly between periods as a result of the timing of grants of new stock-based awards, including grants to new employees resulting from acquisitions. Acquisition related sales and costs of sales adjustments reflect the fair value adjustment to deferred revenues acquired in connection with significant acquisitions. The fair value of deferred revenue represents an amount equivalent to the estimated cost plus an appropriate profit margin to perform services-related software and product support, which assumes a legal obligation to do so, based on the deferred revenue balances as of the date the acquisition of a significant company was completed. Management adds back this deferred revenue adjustment, net of related costs, for non-GAAP revenue and non-GAAP net income because it believes the inclusion of this amount directly correlates to the underlying performance of operations and facilitates comparisons of pre-merger to post-merger results.

The third quarter 2010 earnings call will be held at 8:30 AM EST on Tuesday, November 9, 2010. Investors may listen to the conference call live via telephone or over the internet at Merge Healthcare Web Cast. To access the conference call via phone, investors may dial 800.221.2015 (US and Canada) or 706.634.2159 (International). The conference identification number is 20689738. The conference call will be recorded and the recording may be found via the internet shortly after the call at http://www.merge.com/investor/conferencecall.asp.

Merge Healthcare develops software solutions that automate healthcare data and diagnostic workflow to create a more comprehensive electronic record of the patient experience. Merge products, ranging from standards-based development toolkits to fully integrated clinical applications, have been used by healthcare providers worldwide for over 20 years. Additional information can be found at www.merge.com.

Source: Merge Healthcare Incorporated