UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934
Date of Report: September 30, 2004
(Date of earliest event reported)
MERGE TECHNOLOGIES INCORPORATED
(Exact name of registrant as specified in the charter)
Wisconsin 0-29486 39-1600938
(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification No.)
1126 South 70th Street, Milwaukee, Wisconsin 53214-3151
(Address of Principal Executive Offices)
(414) 977-4000
(Registrant's telephone number, including area code)
N/A
(Former name or former address, if changed since last report.)
SECTION 2 - FINANCIAL INFORMATION
Item 2.02 Results of Operations and Financial Condition
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On October 27, 2004, Merge Technologies Incorporated dba Merge eFilm
announced the financial results for its third quarter of its fiscal year 2004.
A copy of the earnings press release announcing financial results for
the third quarter, together with Condensed Consolidated Statements of
Operations for the three and nine months ended September 30, 2004 and 2003,
respectively, as well as Condensed Consolidated Balance Sheet for September 30,
2004 and December 31, 2003, included therein, is filed as an exhibit to this
Form 8-K and is incorporated by reference herein.
(a) Exhibit
99.1 Press Release announcing third quarter of fiscal year
2004 financial results.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
MERGE TECHNOLOGIES INCORPORATED
Dated: October 28, 2004 By: /s/ Richard A. Linden
-------------------------------------
Richard A. Linden,
President and Chief Executive Officer
MERGE TECHNOLOGIES INCORPORATED
Dated: October 28, 2004 By: /s/ Scott T. Veech
-------------------------------------
Scott T. Veech,
Chief Financial Officer, Treasurer
and Secretary
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EXHIBIT 99.1
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[MERGE EFILM LOGO]
NEWS RELEASE
For Immediate Release
Contact: Scott Veech, Chief Financial Officer
Richard Linden, President & CEO
(414) 977-4000
MERGE EFILM ANNOUNCES THIRD QUARTER 2004 RESULTS
Record revenues and earnings confirm position as market leading
RIS/PACS solution provider; Company increases earnings per share guidance
Milwaukee, WI, October 27, 2004 - Merge Technologies Incorporated,
d.b.a. Merge eFilm (Nasdaq: MRGE), today announced the financial results for
the quarter ended September 30, 2004. Net sales for the quarter ended
September 30, 2004, were $9,307,000, an increase of 22% over net sales of
$7,619,000 for the quarter ended September 30, 2003. Net sales for the nine
months ended September 30, 2004, were $26,851,000, an increase of 33% over net
sales of $20,170,000 for the nine months ended September 30, 2003. As of
September 30, 2004, deferred revenue was $5,426,000 compared to $3,717,000 as
of December 31, 2003, an increase of 46%. As of September 30, 2004, billings
in excess of revenues were $2,333,000 compared to $1,381,000 as of December 31,
2003, an increase of 69%. Deferred revenues and billings in excess of revenues
represents sales not yet recognized as earned revenue on the Company's income
statement to date.
Gross margin in the quarter ended September 30, 2004, was 66%, compared
to 66% in the quarter ended September 30, 2003. Gross margin in the nine
months ended September 30, 2004, was 64%, compared to 69% in the nine months
ended September 30, 2003. The Company's operating margin, defined as operating
income divided by net sales, was 26% in the quarter ended September 30, 2004,
compared to 23% in the quarter ended September 30, 2003. The Company's
operating margin was 26% in the nine months ended September 30, 2004, compared
to 26% in the nine months ended September 30, 2003. For the quarter ended
September 30, 2004, operating income was $2,397,000, an increase of 38%,
compared to $1,738,000 for the quarter ended September 30, 2003.
For the nine months ended September 30, 2004, operating income was $6,919,000,
an increase of 34%, compared to $5,162,000 for the nine months ended September
30, 2003.
Income tax expense for the nine months ended September 30, 2004 was
$2,083,000, a 29% effective rate, compared to $698,000, a 14% effective rate,
for the nine months ended September 30, 2003. The effective tax rate for 2004
was positively impacted by a determination this quarter that the Company met
the U.S. tax code requirements to exclude from taxation a portion of the
profits associated with international sales of the Company's software products.
The net effects were reduced tax payments and improved cash flow from
operations.
For the quarter ended September 30, 2004, net income was $2,237,000,
generating $0.16 diluted EPS compared to $1,625,000 net income and $0.12
diluted EPS for the quarter ended September 30, 2003. For the nine months
ended September 30, 2004, net income was $5,088,000, generating $0.37 diluted
EPS compared to $4,342,000 net income and $0.35 diluted EPS for the nine months
ended September 30, 2003.
ANALYSIS OF RESULTS:
"We continue to advance our market-leading position in clinical and
business workflow systems, specifically RIS, PACS and RIS/PACS software and
professional services, for our target market - imaging centers, small to medium
sized hospitals and specialty clinics," said Richard A. Linden, President and
CEO. "Third quarter highlights include: new and expanded relationships with
imaging centers and national chains, strengthening our product innovation model
through customer relationship initiatives, improving our OEM and international
VAR business and continuing our investments in quality processes throughout
Merge eFilm to provide a foundation for growth. Our success this quarter
combined with our growing strength in the imaging center market and a lower
effective tax rate forms the foundation for increasing our guidance for
earnings per share.
"Our ability to understand the intricacies of business and clinical
workflow within our target market, especially imaging centers, resulted in
expanding our relationship with InSight Health and winning an important new
contract with Radiologix, Inc. These two contracts are part of the 19 new
FUSION(tm) contracts signed this quarter, further reinforcing our leadership
position in the RIS/PACS software market with 174 FUSION RIS, PACS and RIS/PACS
customers representing 366 healthcare facilities. In addition to this growth
metric, we believe that the success of our direct sales for the quarter is best
indicated by combining the increase in billings in excess of revenues with
reported earned revenues. We are pleased with the growth in total direct sales
and professional services as represented by this indicator, and anticipate our
North American distribution strategy to further strengthen through a growing
direct sales team, expanding e-marketing and customer outreach initiatives and
our deepening relationship with SourceOne Healthcare Technologies.
"Our relationship with SourceOne continued to build momentum during
the quarter through product training initiatives for SourceOne sales staff,
refining sales processes, generating sales leads and identifying qualified
prospects. We are encouraged by the progress of this distribution relationship
and the strength of the SourceOne sales pipeline, and expect to close new
business through this distribution channel by year-end, with the full value of
the relationship realized in 2005 and beyond.
"I'm especially encouraged by the performance of our OEM and
International VAR business, which delivered strong sequential growth in
revenues and improved business development activities. Our European VARs
increased their purchases of FUSION PACS software systems, and these systems
were installed in a timely fashion to create European reference sites.
"Representative of our focus on building long-term partnerships with
our customers was our Annual User Group Meeting, held in October. More than
110 customers attended the two-day event to discuss our product vision,
contribute ideas to FUSION RIS/PACS functional enhancements, attend training
sessions on our integrated FUSION RIS/PACS system, guide our thinking on ways
to enhance our professional services and brainstorm on strategic business
development initiatives. In addition, a Customer Advisory Panel was formed
to provide an ongoing format for customer feedback on future product and
service direction. Intimate relationships with our customers represent a
core business strategy for Merge eFilm, helping us to gauge market acceptance
of new product releases and strategic business developments. We are committed
to listening to our customers and designing our products and services to best
meet their clinical and business challenges. Guided by the deep understanding
of our customers needs, our product innovation team made significant progress
in the development of new FUSION RIS/PACS features that will accelerate the
productivity of our customers, expand the services they offer to their
referring physicians, and enhance the efficiency of radiologists. Many of
these new features will be showcased at our industry's largest trade show,
the Radiological Society of North America (RSNA) in late November.
"Quality throughout all our operations remains a key business
initiative for Merge eFilm. We increased investments in internal management
information systems to improve the efficiency of business operations, which
translates into improved service to our customers. Investments in our
employees as our most valued asset remain a top priority to ensure we attract
and retain the talent needed to deliver high quality products to our customers
and provide our customers with exceptional service. Additionally, we continue
to meet our internal quality control goals as demonstrated with our successful
annual ISO audit that was completed this quarter. These initiatives reflect
Merge eFilm's commitment to our employees, product and service quality and
the importance of customer satisfaction.
"We continue to evaluate new products and services that are aligned
with the needs of our target market or are synergistic with our core
competencies allowing us to more easily expand into new clinical markets. We
remain steadfast in our strategic business development evaluation model along
with financial discipline to ensure that our investments in new partnerships,
technologies or acquisitions deliver appropriate long-term value to both our
customers and shareholders.
"In summary, I am pleased with the brand recognition and reputation
we have established among imaging centers ranging from single site facilities
owned by entrepreneurial radiologists, to large regional and national imaging
center chains, and with the advancements we have made in our OEM/VAR channel.
Our strength in providing comprehensive solutions for the clinical and
business needs of this particular market, combined with the deepening
relationships we are forming with our customers, sets the stage for continued
leadership in this market and steady profitable growth. We remain focused on
the customer through market-driven products and professional services,
committed to our employees as our most important asset, and diligent in
balancing near term financial performance with long-term strategic investments
that deliver customer and shareholder value," said Linden.
GUIDANCE:
The Company anticipates market conditions will remain supportive of
its approach to an integrated RIS/PACS software product and associated
professional services. Our strong financial and operational results to date,
improved OEM and International VAR performance, record RIS/PACS backlog and
our recent success with national imaging center chains positions the Company
to refine its full year 2004 guidance with revenues growing 30% to 35% year
over year to a range of $37.5 to $38.5 million, resulting in an increase in
our fully diluted EPS to a range of $0.50 to $0.53.
# # #
ABOUT MERGE EFILM
Merge eFilm is a global healthcare software and services company focused on
accelerating the productivity of imaging centers, hospitals and clinics with
a suite of RIS/PACS software solutions and professional services. For over
seventeen years, Merge eFilm has been a leader in integration of radiology
workflow to improve productivity, profitability and patient care by fusing
business and clinical workflow, and intelligently managing and distributing
diagnostic images and information throughout the healthcare enterprise. For
additional information, visit our web site at www.merge-efilm.com.
Except for the historical information herein, the matters discussed in this
news release include forward-looking statements that may involve a number of
risks and uncertainties. When used in this press release, the words: believes,
intends, anticipates, expects, and similar expressions are intended to
identify forward-looking statements. Actual results could differ materially
from those projected in the forward-looking statements based on a number of
factors, including, but not limited to, risks in product and technology
development, market acceptance of new products and continuing product demand,
the impact of competitive products and pricing, ability to integrate
acquisitions, unexpected outcomes to any pending or future litigation,
changing economic conditions, credit and payment risks associated with
end-user sales, dependence on major customers, dependence on key personnel,
and other risk factors detailed in filings with the Securities and Exchange
Commission. The Company undertakes no obligation to publicly release the
result of any revisions to these forward-looking statements that may be made
to reflect any future events or circumstances.
MERGE TECHNOLOGIES INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(1)
(in thousands, except for share data)
(unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
2004 2003 2004 2003
---------- ---------- ---------- ----------
Net sales ........................... $ 9,307 $ 7,619 $ 26,851 $ 20,170
Cost of sales ....................... 3,208 2,586 9,599 6,266
---------- ---------- ---------- ----------
Gross profit ........................ 6,099 5,033 17,252 13,904
---------- ---------- ---------- ----------
Operating costs and expenses:
Sales and marketing .............. 1,683 1,669 5,088 4,470
Product research and development . 559 566 1,464 1,402
General and administrative ....... 1,258 901 3,194 2,487
Depreciation and amortization .... 202 159 587 383
---------- ---------- ---------- ----------
Total operating costs and expenses .. 3,702 3,295 10,333 8,742
---------- ---------- ---------- ----------
Operating income .................... 2,397 1,738 6,919 5,162
---------- ---------- ---------- ----------
Total other income (expense) ........ 92 97 252 (122)
---------- ---------- ---------- ----------
Income before income taxes .......... 2,489 1,835 7,171 5,040
Income tax expense .................. 252 210 2,083 698
---------- ---------- ---------- ----------
Net income .......................... $ 2,237 $ 1,625 $ 5,088 $ 4,342
========== ========== ========== ==========
Net income per share - basic ........ $ 0.17 $ 0.13 $ 0.39 $ 0.38
========== ========== ========== ==========
Weighted average number of common
shares Outstanding - basic ....... 13,039,123 12,233,517 12,964,960 11,158,830
========== ========== ========== ==========
Net income per share - diluted ...... $ 0.16 $ 0.12 $ 0.37 $ 0.35
========== ========== ========== ==========
Weighted average number of common
shares Outstanding - diluted ..... 13,748,894 13,333,497 13,773,599 12,155,375
========== ========== ========== ==========
(1) These condensed consolidated statements of operations should be read
in conjunction with the Company's Annual Report on Form 10-K for fiscal
2003 and its Quarterly Report on Form 10-Q for the quarterly period
ended September 30, 2004 proposed to be filed on or prior to
November 9, 2004.
MERGE TECHNOLOGIES INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET(1)
(In thousands)
(unaudited)
September 30, December 31,
2004 2003
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Cash .................................. $ 23,977 $ 16,871
Accounts receivable, net .............. 10,254 8,359
Inventory ............................. 1,094 893
Deferred tax asset .................... 2,620 3,541
Other current assets .................. 1,730 444
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Current assets ................ 39,675 30,108
Property and equipment, net ........... 1,424 1,674
Intangibles, net, and other assets .... 32,625 32,113
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Total assets .................. $ 73,724 $ 63,895
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Accounts payable ...................... $ 1,346 $ 1,294
Other current liabilities ............. 2,124 1,993
Deferred revenue ...................... 5,426 3,717
Billings in excess of revenues -
contracts in progress .............. 2,333 1,381
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Current liabilities ........... 11,229 8,385
Deferred tax liability ................ 2,170 1,987
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Total liabilities ............. 13,399 10,372
Shareholders' equity .................. 60,325 53,523
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Total liabilities
and shareholders' equity ... $ 73,724 $ 63,895
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(1) The condensed consolidated balance sheet should be read in conjunction
with the Company's Annual Report on Form 10-K for fiscal 2003 and its
Quarterly Report on Form 10-Q for the quarterly period ended September
30, 2004 proposed to be filed on or prior to November 9, 2004.