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Merge Healthcare Incorporated announced financial results for the first quarter of 2010.

Merge Healthcare Incorporated , a health IT solutions provider, announced financial results for the first quarter of 2010. Revenue grew to $20.0 million in the quarter, over $15.3 million in the first quarter of 2009 and from $19.3 million in the fourth quarter of 2009.

"We are seeing early signs of the market improving from a few years of decline due to a global economic downturn and ongoing legislative healthcare turmoil in the U.S.," said Justin Dearborn, Merge CEO. We have positioned ourselves well from a solution offering perspective to capitalize on the improvement in the market. We also believe our higher revenue and bookings in the quarter are a result of customer confidence in the company, as medical imaging providers desire to purchase solutions from stable vendors."

The results for the first quarter of 2010 also include significant acquisition-related costs incurred as part of the acquisition of AMICAS, Inc. ( AMICAS ), which closed on April 28, 2010. An update regarding this acquisition will be provided on the call. This transaction positions Merge to be a leading provider of medical imaging software solutions in the North American market, and provides the company with significant cross selling opportunities and further scale to increase our international distribution channels. Financially, the acquisition brings additional stability to recurring revenue and non-recurring revenue backlog and provides us with the opportunity to bring additional operational rigor to the combined, larger organization.

Quarter Results:

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

                                         Q1 2010      Q1 2009     Q4 2009
                                       ----------- -----------  -----------
Net sales                               $20.0            $15.3   $19.3
Operating income (loss)*                 (3.2 )            3.5     1.5
Net income (loss)*                       (3.2 )            2.8    (2.1 )
Adjusted EBITDA**                         5.6              5.2     4.9
Earnings (loss) per diluted share      $(0.04 )          $0.05  $(0.03 )
Adjusted EBITDA per diluted share**     $0.07            $0.09   $0.07
Recurring revenue as % of net sales**       > 60%        > 45%       > 60%
Non-recurring backlog at period end**    $8.9      Unavailable    $8.7

* Operating and net income in the first quarter of 2010 includes acquisition-related costs of $5.9 million, compared to no such costs in the first quarter of 2009 and $0.2 million in the fourth quarter of 2009.

In the first quarter of 2010, the cash balance decreased by $3.8 million to $15.8 million as of March 31, 2010, primarily as a result of the payment of $4.9 million of acquisition-related costs in the period.

Days sales outstanding for the first quarter of 2010 was 85 days, compared to 79 days for the first quarter of 2009 and 82 days in the fourth quarter of 2009.

Based on preliminary information received, the first quarter of 2010 for AMICAS resulted in net sales of $29.4 million, a net loss of $1.8 million and adjusted EBITDA** of $7.1 million. The net loss includes acquisition-related costs of $6.3 million. Cash and marketable securities decreased $1.8 million in the first quarter of 2010 to $45.9 million as of March 31, 2010, primarily as a result of the payment of $5.9 million of acquisition-related costs in the period. Recurring revenue for AMICAS was 65% of net sales and non-recurring backlog as of March 31, 2010 was $35.3 million.

** Non-GAAP Measures

Adjusted EBITDA is defined as net income (loss) for the relevant period adjusted, to the extent such items occurred in the periods presented, for the following: (a) interest expense (income), (b) income tax expense (benefit), (c) depreciation, amortization and impairment, (d) acquisition-related expenses, (e) goodwill and trade name impairment, restructuring and other expenses, (f) impairment of investments, (g) realized gain or loss on investments, (h) loss on early retirement of debt, (i) sale of non-core patents, (j) non-cash stock-based compensation expense, (k) acquisition-related severance and (l) sales and cost of sales adjustments for acquisitions that were recorded as a result of the accounting treatment for such acquisitions. A reconciliation of this non-GAAP measure to the most directly comparable GAAP measure is included after the financial information included in this press release. Because certain charges, costs and expenses reflect events that are not essential to our recurring business operations, it is useful to compare results excluding these amounts. Management also uses financial statements that exclude these charges costs and expenses for its internal budgets.

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 product lines, long-term contracts associated with our SaaS related offerings 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 as of December 31, 2009. Comparative information prior to the end of the fourth quarter of 2009 is unavailable.

These measures are not in accordance with, or an alternative for, GAAP and may be different from non-GAAP measures used by other companies. Management believes that the presentation of non-GAAP results, when shown in conjunction with corresponding GAAP measures, provides useful information to management and investors regarding financial and business trends related to our results of operations. Further, management believes that these non-GAAP measures improve management's and investors' ability to compare Merge's financial performance with other companies in the technology industry. While GAAP results are more complete, we offer investors these supplemental metrics 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. These non-GAAP financial measures should be read only in conjunction with the consolidated financial statements prepared in accordance with GAAP.

Conference Call Information:

Merge will hold a public web cast tomorrow at 8:30 a.m. EDT to review these financial results and to provide an update on business operations and strategy. Immediately following, there will be a question and answer session.

Investors can listen to the conference call live via telephone or over the Internet at Merge Healthcare Web Cast. To access the call via phone, investors can dial 800.221.2015 (US and Canada) or 706.634.2159 (International). The Conference ID Number to reference is 71224037. A replay via the Internet or telephone will be available shortly after the call at http://www.merge.com/investor/conferencecall.asp.

Source: Merge Healthcare