Merge Healthcare Reports Best Operating Income in Three Years

Business Wire, July 30, 2009

MILWAUKEE -- Merge Healthcare Incorporated (NASDAQ: MRGE), a health IT solutions provider, today announced financial results for the second quarter of 2009. These results are within the upper end of the range of revenue and the midpoint of the range of net income expectations previously announced.

Quarter Results:

Results compared to the prior quarter, as well as the same quarter in the prior year, are as follows (in millions):

[Table Omitted]

* Excluding the non-cash equity impairment charge discussed below, net income and EBITDA for the second quarter of 2009 would have been $4.0 million and $6.3 million, respectively. These amounts are non-GAAP and meaningful as the impairment charge doesn’t impact our cash operations. EBITDA is defined by Merge as earnings before interest expense (net), taxes, depreciation and amortization (which includes the amortization of stock-based compensation).

The second quarter of 2009 includes a $3.6 million non-cash write down of an equity interest in Eklin Medical Systems, Inc. (“Eklin”) as a result of the acquisition of Eklin by VCA Antech, Inc. (NASDAQ: WOOF)(“VCA”). Merge will receive $1.4 million for its equity interest in Eklin, the majority of which will be collected in the third quarter of 2009. Additionally, Eklin and Merge executed a new value added reseller (“VAR”) agreement that Eklin assigned to VCA through the acquisition. This new Eklin VAR agreement generated $2.2 million of additional revenue in the second quarter.

Diluted earnings per share in the second quarter of 2009 were $0.01, compared to a $0.05 in the first quarter of 2009 and a loss of $0.45 in the second quarter of 2008.

For comparison purposes, it should be noted that the second quarter of 2008 included the following charges:

• $7.5 million for restructuring activities;
• $1.1 million due to a trade name impairment;
• $1.7 million related to the disposal of a French subsidiary; and
• $3.0 million related to a shareholder lawsuit settlement.

In the second quarter of 2009, the cash balance increased by $0.3 million to $20.0 million at June 30, 2009. The cash activity in the second quarter was impacted by $1.3 million of cash paid to acquire certain assets and related obligations from eko systems, inc. in April.

In addition, net accounts receivable increased by $0.8 million to $14.2 million, while deferred revenue decreased by $1.8 million to $13.0 million at June 30, 2009. As a result of the VAR agreement with Eklin, $0.8 million of revenue deferred under a prior agreement was recognized in the second quarter of 2009.

Year-to-Date Results:

Merge’s financial results for the six months ended June 30, 2009, compared to the prior year are as follows (in millions):

[Table Omitted]

Diluted earnings per share in the six months ended June 30, 2009 were $0.06, compared to a loss of $0.70 in 2008.

Conference Call Information:

Merge will hold a public web cast today at 4:15 p.m. EDT to review these financial results and to provide an update on business operations and strategy. Immediately following, there will be a question and answer session.

Investors will have the opportunity to listen to the conference call via telephone or over the Internet at Merge Healthcare Web Cast. To access the call, dial 1.800.221.2015 or 706.634.2159. The Conference ID Number to reference is 20416411. A replay via the Internet or telephone will be available shortly after the call at http://www.merge.com/investor/conferencecall.asp.

Merge Healthcare Incorporated builds software solutions that automate healthcare data and diagnostic workflow, both to build a better electronic record of the patient experience, and also to enhance product development for health IT, device and pharmaceutical companies. Merge products, ranging from standards-based development toolkits to fully integrated clinical applications, have been used by healthcare providers and researchers worldwide for over 20 years. Additional information can be found at www.merge.com.

Information included in this news release may contain forward-looking statements, concerning, among other things, Merge’s outlook, financial projections and business strategies, all of which are subject to risks, uncertainties and assumptions. These forward-looking statements are identified by their use of terms such as “intend,” “plan,” “may,” “should,” “will,” “anticipate,” “believe,” “could,” “estimate,” “expect,” “continue,” “potential,” “opportunity,” “project” and similar terms. These statements are based on certain assumptions and analyses that Merge believes are appropriate under the circumstances. Should one or more of these risks or uncertainties materialize, or should the assumptions prove incorrect, actual results may differ materially from those expected, estimated or projected. Merge can not guarantee that it will achieve these plans, intentions or expectations. Forward-looking statements speak only as of the date they are made, and Merge undertakes no obligation to publicly update or revise any of them in light of new information, future events or otherwise, except as required by law. Factors that could have a material adverse effect on operations and future prospects of Merge include, but are not limited to: market acceptance and performance of Merge’s products and services; the impact of competitive products and pricing; the risks and effects of its recent securities issues; the past restatement of our financial statements; the amount of the costs, fees, expenses and charges related to the acquisition of etrials Worldwide, Inc. (“etrials”); the ability of Merge Healthcare to integrate etrials successfully; whether the transaction will result in the enhancement of value and benefits to customers and to Merge Healthcare’s and etrials’ stockholders; general economic and business conditions; global economic growth and activity; industry conditions; and changes in laws or regulations. our ability to generate sufficient cash from operations to meet future operating, financing and capital requirements, including repayment obligations with respect to our outstanding indebtedness; risks associated with our prior delays in filings with the SEC or our ability to continue to meet the listing requirements of The NASDAQ Stock Market; the costs, risks and effects of various pending legal proceedings and investigations, including the formal investigation being conducted by the Securities and Exchange Commission and the pending settlements of certain class action and derivative lawsuits; and other risk factors detailed in our filings with the Securities and Exchange Commission. These uncertainties and risks may cause our actual future results to be materially different than those expressed in our forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date the statement was made. We undertake no obligation to update such forward-looking statements or any of such risks, uncertainties and other factors, except as required by law.