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Merge splits into two operating groups, posts $1.8 million loss

by Brendon Nafziger, DOTmed News Associate Editor | May 07, 2012
Merge Healthcare Inc. said it was splitting up its imaging and consumer-focused products into separate operating groups, and will continue to push a subscription pricing model for all its products.

The news came as the Chicago-based company posted a $1.8 million loss, or 2 cents a share, for the first quarter, down from its $3.2 million loss, or 4 cents a share, in the same period last year.

Merge said it worked the split so each new operation would be able to focus more on one of the company's two primary customers, health care providers and consumers.

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Of the two units, the Merge Healthcare operation, which represents about 85 percent of the company's revenues, will go after providers, offering PACS, electronics health records and an image-sharing cloud solution called Honeycomb that was released at the Radiological Society of North America's conference last November. The other operation, Merge Data & Analytics, or Merge DNA, will focus on the growing "consumerism" in health care, and sell consumer health stations and clinical trial software, Merge said.

Jeff Surges, Merge's CEO, will continue to lead Merge Healthcare, while chief financial officer Justin Dearborn will helm Merge DNA. Former CFO Steve Oreskovich will step in for Dearborn and resume his old duties, Merge said.

In its financial report for the quarter ending March 31, Merge posted $61 million in revenues, up 16 percent from the $52.7 million in revenue it got during the first quarter 2011. However, its operating income dropped from $5.8 million Q1 2011 to $5.7 million in Q1 2012.

Merge also said because of the "short-term financial impact" of moving from a perpetual license model to a subscription model for its products, it's withdrawing the financial guidance it provided last November.

"While we expect our revenue to grow year-over-year in 2012, the trend towards subscription pricing has changed our initial 2012 revenue and adjusted EBITDA expectations," Surges said in a statement.

Merge said that over the past quarter, the businesses that will make up its Merge Healthcare operation signed nine contracts for its image sharing and archiving iConnect products with Mercy, Lutheran HealthCare, Northwestern Memorial Hospital and other health systems, and executed 12 contracts for its meaningful use platform, bringing its MU client base to 89 facilities, representing 850 doctors.

And the businesses going to make up Merge DNA signed a multi-year imaging clinical trials partnership with Bayer HealthCare, and launched the latest version of its health station, Merge said.

Merge's stock fell 5.57 percent to reach $3.73 a share during after-hours trading on Nasdaq on Monday.

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