– Company generates $37.0 million in revenue and $0.54 EPS
for the year, exceeding earnings guidance –
Milwaukee, WI, February 15, 2005 – Merge Technologies Incorporated, d.b.a.
Merge eFilm, (NASDAQ: MRGE), today announced the financial results for the
quarter and fiscal year ended December 31, 2004.
Net sales for the quarter ended December 31, 2004, were $10,154,000, an
increase of 19% over revenues of $8,507,000 for the quarter ended December
31, 2003. Net sales were $37,005,000 for the twelve months ended December
31, 2004, an increase of 29% over revenues of $28,677,000 for the twelve
months ended December 31, 2003. As of December 31, 2004, deferred revenue
was $5,839,000 compared to $3,717,000 as of December 31, 2003, an increase
of 57%. As of December 31, 2004, billings in excess of revenues were $2,
839,000 compared to $1,381,000 as of December 31, 2003, an increase of
106%. Deferred revenues and billings in excess of revenues represent sales
not yet recognized as earned revenue on the Company’s income statement to
date.
Gross margin for the quarter ended December 31, 2004, was 68%, compared to
68% for the quarter ended December 31, 2003. Gross margin for the twelve
months ended December 31, 2004, was 65%, compared to 69% for the twelve
months ended December 31, 2003. The Company’s operating margin, defined as
operating income divided by net sales, was 24% for the quarter ended
December 31, 2004, compared to 22% for the quarter ended December 31, 2003.
Operating margin for the twelve months ended December 31, 2004, was 25%
compared to 24% for the twelve months ended December 31, 2003.
Income tax expense for the twelve months ended December 31, 2004 was $2,
338,000, a 24% effective rate, compared to $660,000, a 10% effective rate,
for the twelve months ended December 31, 2003. The effective tax rate for
2004 was further positively impacted by a determination this quarter that
the Company was eligible for a larger exclusion, based on the Company’s
unique facts and circumstances, under the U.S. tax code requirements which
allow an exclusion of a portion of the profits associated with
international sales of the Company’s software products from taxation. The
net effects were reduced tax payments and improved cash flow from
operations.
Net income for the quarter ended December 31, 2004, was $2,379,000, an
increase of 25% over net income of $1,897,000 for the quarter ended
December 31, 2003. Basic EPS was $0.18 and diluted EPS was $0.17 for the
quarter ended December 31, 2004, compared to basic EPS of $0.15 and diluted
EPS of $0.14 for the quarter ended December 31, 2003. Net income for the
twelve months ended December 31, 2004, was $7,467,000, an increase of 20%
over net income of $6,239,000 for the twelve months ended December 31,
2003. Basic EPS was $0.57 and diluted EPS was $0.54 for the twelve months
ended December 31, 2004, compared to basic EPS of $0.53 and diluted EPS of
$0.49 for the twelve months ended December 31, 2003.
Cash at December 31, 2004, increased 66% to $28,067,000 from $16,871,000 at
December 31, 2003, due to strong cash flow from operations, as a result of
growth in sales contracts, profitability, and a favorable tax rate.
Analysis of Results:
“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,” said Richard
A. Linden, President and CEO. “During 2004, Merge eFilm focused on five
key initiatives: expanding our business development and sales distribution
capabilities; improving our OEM international and VAR business; expanding
our RIS/PACS product features and market share; implementing strategies to
enhance and strengthen the relationship with our customers and the
investment options for our shareholders; and forming strategic
relationships to expand our products and services in line with emerging
medical imaging market trends. 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, we expanded our business development and sales distribution
capabilities to broaden our coverage of the North American healthcare
market and form long-term partnerships with national imaging center chains.
We developed a distribution partnership with SourceOne Healthcare, which
increased our market coverage and exposed our RIS/PACS solutions to
SourceOne’s customers. Our relationship with SourceOne continued to build
momentum throughout the second half of 2004 following the signing of our
agreement in July, resulting in three new FUSION contracts during the 4th
quarter. We are encouraged by the progress of this distribution
relationship and the strength of the SourceOne sales pipeline as we move
into 2005. Additionally, our ability to understand the intricacies of
business and clinical workflow within our healthcare target market,
especially imaging centers, resulted in expanding our relationship with
regional and national imaging center chains such as InSight Health Corp.,
Center for Diagnostic Imaging and Regional Diagnostic Imaging, Inc., and
winning an important new RIS/PACS software and service contract with
Radiologix, Inc. We are pleased that medical imaging corporations of this
size and stature continue to choose our RIS/PACS solutions to support their
business and clinical operations.
“I’m particularly encouraged by the performance of our OEM and
International VAR business during the 2nd half of 2004. Our European VARs
implemented FUSION PACS in five new countries in 2004, providing reference
sites for our solutions. We also revitalized relationships with our OEM
customers, including the creation of a new software product line customized
for a leading OEM in Europe. In partnership with our OEM’s, we entered a
new vertical market, veterinary medicine, where our software components
complete our OEM’s broader digital offering to the emerging veterinary
medicine market. We expect the OEM/VAR business development progress we
made during the second half of 2004 to continue in 2005.
“We expanded our market presence in 2004, including 21 new FUSION™
contracts that were added during the 4th quarter, growing our total number
of FUSION solution customers to 195, representing over 400 healthcare
facilities. Use of our eFilm Workstation desktop medical imaging software
increased substantially during the year, delivering strong software
licensing revenues and exposing eFilm Workstation to over 50,000 clinicians
and healthcare professionals worldwide. This unique e-commerce marketing
and software distribution strategy continues to be a strong source of
FUSION RIS/PACS sales leads and will serve as a platform for distribution
of our new advanced visualization products obtained from the acquisition of
AccuImage.
“In 2004, we initiated a number of activities to strengthen our
relationship with our customers, built long-term and scalable employee
development programs and enhanced our shareholders investment options. We
held our first annual Users’ Group Meeting in October, and formed a
Customer Advisory Panel, creating stronger mutually beneficial
relationships with our customers that support the sharing of best practice
information and the contribution of ideas to FUSION RIS/PACS functional
enhancements. We also continued our steady investments in Human Resources
and Organizational Development initiatives to support our growing
organization and the very important human intellectual capital that drives
its success. In 2004, we joined the Russell 2000® Small Cap Index,
established a stock repurchase program, and options on Merge eFilm stock
commenced trading, all of which strengthened the financial foundation that
supports our growth initiatives and value to our shareholders.
“Merge eFilm prides itself on forward-thinking strategic initiatives and
product innovation designed to meet the future needs of our healthcare
customers. During 2004 we initiated a strategy to accelerate our entry
into advanced visualization, resulting in the January 2005 acquisition of
AccuImage Diagnostics Corp., a leader in the development, marketing and
support of software for advanced visualization. This acquisition
strengthened the clinical capabilities of our FUSION product suite and
expanded opportunities within our OEM/VAR business. 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. We are particularly excited about this strategy because it
provides enterprise-wide access to these clinical applications, rather than
industry-standard stand-alone workstations, increasing product
accessibility and further accelerating the productivity and profitability
of our customers.
“On January 18, 2005, we announced the signing of a definitive agreement to
merge with Cedara Software Corp. (NASDAQ: CDSW/TSX: CDE) in an all-stock
transaction, subject to shareholder and regulatory approval. Combining
these companies will bring to the market the most comprehensive image and
information management solution sets to manage clinical and business
workflow for the diagnostic imaging OEM and end user markets, and will
expand our growth into clinical imaging specialties beyond radiology. We
anticipate the same successful integration with Cedara as we have exhibited
in our RIS Logic and eFilm Medical transactions and remain steadfast in our
commitment to our stakeholders during this merger, including the
expectation to deliver accretive earnings as a result of this merger within
12 months post-closing.
“With the economic advantages of a film-less and paperless workflow
environment, expanded market presence, new market opportunities, and strong
projected growth in image and information management systems, we anticipate
that our alignment to meet market conditions will continue and strengthen
in 2005 and beyond. In 2005, we will develop products and services that
enhance the value of our RIS/PACS foundation beyond radiology, creating
clinical applications for use by the increasing number of specialists that
utilize diagnostic imaging in their practices. We anticipate accelerating
product innovation in partnership with our OEM customers and leveraging
those partnerships to strategically innovate our RIS/PACS products more
rapidly to meet future customer needs. Pending shareholder approval, we
expect to successfully merge with Cedara, delivering increased value to our
shareholders, customers and employees. And finally, we expect to maintain
the operational discipline, profitable growth and strategic vision to
deliver another year of exceptional performance for our shareholders,” said
Linden.
Guidance:
Market trends remain very favorable towards the comprehensive clinical and
business workflow solutions offered by the Company. The Company continues
to believe that its target market is moving rapidly towards film-less and
paperless software solutions, and that the growth in imaging services
performed in clinical specialties beyond radiology will expand rapidly.
The Company also believes the definition of RIS/PACS will change
substantially over the next year as advanced visualization and clinical
applications become part of integrated workflow solutions within imaging
centers, hospitals and specialty clinics. The Company’s strategy and
operational tactics are well aligned with these market trends. The Company
anticipates 2005 revenues to grow 30% to 35% year over year to a range of
$48 million to $50 million. The Company expects diluted EPS of $.68 to
$.75, which incorporates an estimated effective tax rate of approximately
30% to 35% for the year.
The Company expects to successfully merge its operations with Cedara,
pending shareholder and regulatory approval, and to achieve key integration
objectives. These integration objectives include accelerating product
innovation across our combined OEM and end-user product lines, achieving
over $3 million in non-staff related expense synergies, expanding the
distribution of our OEM and RIS/PACS end-user solutions yielding revenue
synergies and delivering accretive earnings to our shareholders within 12
months following the closing of the merger.
