16 Feb Balance-sheet success leads to hunt for market dominance at Merge
Milwaukee — Record earnings may be the least of the news coming from Merge Technologies Inc., a.k.a Merge eFilm.
The Milwaukee-based maker of radiology information system (RIS) and picture archiving and communications system (PACS) software for health-care providers reported record fiscal results this week for the quarter and fiscal year ended December 31, on the strength of new strategic partnerships and its growing international business.
Merge logged net sales of $10.1 million for the quarter, an increase of 19 percent over Q4 2003. Net sales for the year were just more than $37 million, representing a 29 percent jump over the previous 12 months.
In addition to its strong financial performance, the company has moved aggressively to establish its market position through mergers and acquisitions. During 2004 the company began a strategy to accelerate its entry into advanced visualization technology; the strategy resulted in the acquisition of AccuImage Diagnostics Corp. last month.
“AccuImage advanced clinical applications, when integrated within our RIS/PACS solutions, will provide our customers with an expanded set of products designed to enhance their revenue streams and expand the services they offer to their customers,” Merge CEO Richard Linden said. “We are particularly excited about this strategy because it provides enterprise-wide access to these clinical applications, rather than industry-standard stand-alone workstations.”
Also in January, the company announced the signing of a definitive agreement to merge with Cedara Software Corp. in an all-stock transaction. The move is good for several reasons, according to one analyst that tracks the company.
“From our perspective, this merger should have a number of benefits to Merge Technologies including a doubled end-user customer base and sales force, both of which will now be considerably larger than those of any directly competitive company,” Moors & Cabot Capital Partners said in a research note in late January. “The greatest strategic benefit, in our view, should be internal access to a continuous cycle of OEM product innovation, including the development of a range of advanced visualization techniques in a variety of medical imaging disciplines, and the ability to rapidly expand that expertise into the company’s increasingly leveraged direct sales channel.”
The report continued, “We anticipate that Merge Technologies will now be not only the most profitable and rapidly growing RIS/PACS software company in its market sector (small-to-medium-sized hospitals and community clinics) but also the largest. In the Merge combined entity, we expect that RIS/PACS revenues will be at least $62 million ($38 million attributable to Merge current revenues and $24 million attributable to eMed).”
As of the end of 2004, billings in excess of revenues at Merge eFilm were just under $2.84 million, compared to about $1.38 million as of the end of 2003, an increase of 106 percent. Deferred revenues and billings in excess of revenues represent sales not yet recognized as earned revenue. In a Q&A session with analysts, Linden noted that those deferred billings were a positive reflection on Merge’s sales force, which succeeded in turning many one-time PACS contracts into longer-term RIS/PACS sales.
“That’s a huge win for us,” Linden told analysts. “Anytime we can own the end-to-end information systems infrastructure for our customers, that’s a wonderful thing for us long-term.”
Company CFO Scott Veech said, “[We] are pleasantly surprised by our sales staff’s ability to up-sell our customers on the value proposition of integrated RIS/PACS.”
Net income for the fourth quarter was almost $2.38 million, an increase of 25 percent over Q4 2003. Net income for all of 2004 was almost $7.47 million, an increase of 20 percent over 2003. Cash on hand at the end of last year mushroomed 66 percent over year-end 2003 to more than $28 million, due to strong cash flow from operations, growth in sales contracts, profitability, and a favorable tax rate.
“I’m pleased to report that we successfully delivered strong financial, operational and strategic performance this year, which furthered our market leading position as a provider of comprehensive RIS/PACS software solutions and professional services to our healthcare target markets,” Linden said in a release. “Our strong operational performance combined with our strategic initiatives this past year positions us to continue our four-year track record of delivering increasing value to our key stakeholders.”
In 2004, Merge broadened its coverage of the North American market and forged some long-term partnerships with national imaging center chains, Linden noted. The company also developed a distribution partnership with SourceOne Healthcare, which helped the company boost its market coverage and also exposed its RIS/PACS solutions to SourceOne customers. Following the signing of the agreement in July, Merge landed three new contracts during the fourth quarter.
“We are encouraged by the progress of this distribution relationship and the strength of the SourceOne sales pipeline as we move into 2005,” Linden said.