Merge Healthcare ekes out gains as interest, other expenses fall

Despite a significant drop in revenue, Chicago-based Merge Healthcare, a developer of imaging and interoperability software systems, turned a modest profit for the first quarter of 2014 thanks to lowered interest expenses and other cost-cutting, the company reports.

Merge reported net sales of $50.9 million for the first quarter of 2014 compared with $63.6 million for the same period a year earlier, a fall of nearly 20%. But by trimming sales and other costs, Merge eked out $323,000 in net income for the first quarter this year, compared with a $6.5 million net loss in the same period in 2013.

Calculated against nearly 94.7 million shares, earnings per share was reported as $0.00 for the quarter—it works out to about three-tenths of a cent per share—compared with a loss of $0.07 for the first quarter in 2013.

Merge reported losses in all four quarters in 2013 for a net loss of nearly $39 million, or $0.42 per share.

One key to profitability to date this year was a nearly 53% reduction in the “other expense” line item on the income statement, to $4.1 million for first period in 2014 compared with $8.8 million in first quarter 2013, “primarily due to the refinancing of our debt in the second quarter of 2013 that resulted in a lower interest rate and $4.1 million of lower expenses in 2014 and a $0.4 million unfavorable fair value adjustment of an investment in 2013,” the quarterly report said.

“In Q1, Merge continued to see positive momentum in our operations,” CEO Justin Dearborn said in a release. “We demonstrated strong cash flow by keeping our expenses under control, achieved positive net income and increased our adjusted EBITDA.”

All of its software applications eligible for testing have received certification for use by providers to meet Stage 2 of the meaningful-use requirements under the federal EHR incentive payment program, the company reported.

Also, it launched during the first quarter a new retinal screening interoperability system “that will enable integrated delivery systems and accountable care organizations to more effectively identify and screen diabetic patients,” according to the release.

Aside from problems with lack of profitability, Merge has had its share of other troubles in recent months.

Last August, in an upper management shakeup, both its board chairman, Michael Ferro Jr., and its CEO and fellow board member, Jeffrey Surges, resigned.

In January, Merge reported it reduced by $15 million its backlog of orders, alleging an employee had falsified business contracts with customers.

Follow Joseph Conn on Twitter: @MHJConn