Merge Reports Second Quarter Sales Growth of 13%

 Merge Healthcare Incorporated (Nasdaq:MRGE), a leading provider of clinical systems and innovations that seek to transform healthcare, today announced its financial and business results for the second quarter of 2012.
"Our second quarter results reflect solid revenue growth even as we move to a new business model," said Jeff Surges, CEO of Merge Healthcare. "With our premier client base, industry-leading solutions and expansion into new markets, we are well-positioned for continued success in 2012."
Financial Highlights:
Revenue was $62.9 million ($63.4 million on a pro forma basis) in the quarter, compared to $55.6 million ($57.0 million on a pro forma basis) in the second quarter of 2011 – an increase of 13%. Adjusted EBITDA was $13.6 million, representing 21% of pro forma revenue in the quarter, compared to $17.1 million and 30% in the second quarter of 2011.
Subscription-based pricing arrangements in which software, hardware and professional services are recognized ratably over a number of years generated 15% of total revenue in the quarter. 
Business Highlights:
Signed multiple subscription-based contracts including an extension of our strategic partnership with one of the largest imaging practices in the country;
Extended our leadership in enterprise-wide imaging and was named the world's #1 Vendor Neutral Archive (VNA) provider;
Added five iConnect® contracts with leading healthcare systems including Franciscan Alliance, Children's Hospital & Research Center in Oakland, Our Lady of Lourdes and St. Vincent Hospital;
Executed 12 contracts for the Merge Meaningful Use (MU) platform within Radiology and Orthopedics settings, adding another 125 physicians to those who have already selected Merge;
Released eClinical OS, a Software as a Service (SaaS) application, offering an end-to-end solution for clients to design, deploy and manage clinical trials;
Continued the nationwide replacement of disconnected health station units currently in retail pharmacy and corporate settings with new, connected Merge Health Stations.
Quarter Results:
Results compared to the same quarter in the prior year on a GAAP basis are as follows (in millions, except per share data):
                                                                                  Q2 2012 Q2 2011
Net sales                                                                         $62.9 $55.6
Operating income                                                            3.4 8.1
Net loss attributable to common shareholders                  (5.9) (3.3)
Net loss per diluted share                                               ($0.06) ($0.04)
Cash balance at period end                                          $33.7 $45.2
Cash from business operations*                                     10.2       6.6
*See table at the back of this earnings release.
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):
                                                                         Q2 2012 Q2 2011
Pro forma results    
Net sales                                                                $63.4 $57.0
Adjusted net income                                             1.7 5.0
Adjusted EBITDA                                                   13.6 17.1
Adjusted net income per diluted share                 $0.02 $0.06
Adjusted EBITDA per diluted share                         $0.14 $0.20
Non-GAAP and other measures**
Subscription, maintenance & EDI revenue as % of net sales 58.8% N/A
Subscription and non-recurring backlog at period end          $62.4 N/A
Days sales outstanding                                                             99 93
**Comparable information for periods prior to Q2 2012 is not available.
Reconciliation of GAAP net income to adjusted net income and adjusted EBITDA is included after the financial information, below.
Pro Forma Operating Group Results:
Results (in millions) for our operating groups, which we commenced reporting in the second quarter of 2012, are as follows:
  Three Months Ended June 30, 2012
                                                       Healthcare DNA  Corporate/Other
Net sales:        
Software and other                               $ 20.5  $ 5.0    $ 25.5
Service                                                     7.0  3.0                 10.0
Maintenance                                               27.4  0.5                 27.9
Total net sales                                               54.9  8.5                  63.4
Gross Margin                                                33.3    2.7          36.0
Gross Margin %                                       60.7%  31.8%           56.8%
Expenses                                                           22.8  3.8    26.6
Segment income (loss)                              $ 10.5  $ (1.1)    9.4
Operating Margin %                                    19.1% -12.9%   14.8%
Net corporate/other expenses (1)      $ 12.7  12.7
Loss before income taxes                (3.3)
Adj. EBITDA reconciling adjustments          4.0  1.1  11.8  16.9
Adjusted EBITDA                                       $ 14.5  $ —  $ (0.9)  $ 13.6
Adjusted EBITDA                                          % 26.4% 0.0%   21.5%
(1) Net corporate/other expenses include public company costs, corporate administration costs, acquisition-related expenses and net interest expense.
                                           Net Sales in the Three Months
                                                 Ended June 30, 2012
                                                                                                                Backlog as of June 30, 2012  
                          Healthcare DNA Healthcare DNA  
Revenue Source $ % $