INVESTOR PRESENTATION. Merge Healthcare January 2012

Transcription

1 INVESTOR PRESENTATION Merge Healthcare January 2012

2 forward looking statement 2 The matters discussed in this presentation may include forward-looking statements, which could involve a number of risks and uncertainties. When used in this presentation, the words will, believes, intends, anticipates, expects and similar expressions are intended to identify forward-looking statements. Actual results could differ materially from those expressed in, or implied by, such forward-looking statements. Except as expressly required by the federal securities laws, the Company undertakes no obligation to update such factors or to publicly announce the results of any of the forward-looking statements. Some of the products and/or product features discussed in this presentation may be works in progress and not yet generally available for sale.

3 presenters 3 Jeff Surges Chief Executive Officer Justin Dearborn President & CFO Appointed CEO in November years managing high-growth technology companies Previously served as President of Sales at Allscripts for 3 years President & CEO of Extended Care Information Network President & GM of McKesson HBOC's Resource Management Group Appointed President and CFO in November 2010 Previously served as CEO of Merge from Merge Director Various senior management positions at Click Commerce

4 our company 4 our company Traded on NASDAQ Exchange (MRGE) Over 900 employees worldwide Revenue guidance of $235M for FY11 Co-founder and #1 provider of DICOM solutions globally Over 70 patents in imaging and healthcare information technology our solutions Image Interoperability Radiology Cardiology Specialty EHR Orthopedics Ophthalmology Lab Perioperative Clinical Trials our clients Over 1,500 Hospitals 6,000 Clinics and Labs 250 OEM Clients 7 of 10 top Pharma Companies 100 million healthcare transactions annually 10,000 terabytes of images managed by our solutions

5 our US footprint 5 The Largest National Imaging Network

6 our clients 6 1,500 Hospitals 6,000 Clinics & Labs 250 OEM Clients 7of 10 Top Pharma Companies 20,000 Healthcare ATMs Including the Top 20 Hospitals on America s Best Hospital Honor Roll 1/3 of all US Imaging Centers 50% of all digital Ortho Groups annual market 2,000 size Ophthalmology sites 75% of all worldwide modality vendors use Merge in their systems Partnered with the leading HIT organizations Top pharmaceutical companies use Merge to run their clinical trials The largest network of healthcare stations in the nation

7 our brand 7 energy innovation performance.

8 investment highlights 8 Significant Growth 2010: $190M (Pro forma) 2011: $235M 2012: $288 - $300M Favorable Macro Industry Conditions Economic and government environment are driving change Meaningful Use will help to accelerate demand Healthcare Consumerism is exploding Revenue Visibility Strong, Seasoned Leadership High, recurring revenue model Large, diversified client base Largest national footprint of imaging clinics & healthcare ATMS Seasoned management team with extensive experience Operational expertise and track record of delivering organic growth

9 medical images are the YouTube of healthcare 9 In the US alone, over 3 exabytes of storage needed or 10 GB per person An average x-ray of the heart is the same size (3 GB) as the video file for the movie Titanic 80% of the data storage in healthcare comes from medical images Genomic testing could increase data storage to a zettabyte of storage per hospital in the next five years. * Source: HMI Research Report: A Senior IT Executive Perspective on Data Growth in Hospitals

10 near term trends 10 Meaningful Use Our core solutions in Radiology and Ortho will qualify for Meaningful Use Certification Enterprise Wide Imaging Health systems are moving away from departmental solutions to enterprisewide strategies for imaging Archiving Growth For many health systems, medical images are the largest and fastest increasing element of storage growth Spending predicted to DOUBLE* Interoperability Interoperability is required to address Meaningful Use, ACOs and bundled payments HIEs Health Information Exchanges are vital for the industry's success with ARRA * Source: Bain & Company survey

11 longer term trends 11 Everything is moving to the cloud Consumers will control everything Everything is going digital

12 the impact of meaningful use 12 Meaningful Use Opportunity: 118,729 providers Obstetrics/Gynecology 35,137 5% $44,000 per provider Radiology, General 27,169 4% $5.2B available to Merge clients Cardiology 21,013 3% Orthopaedic Surgery 20,075 3% Ophthalmology 15,335 2% Merge Opportunity: 118,729 PHYSICIANS

13 real world scenario #1 13 Problems with this Current State: Unnecessary costs Duplicate tests Inefficient process for patients Ice & Pediatrician Local Imaging Center Referred to a Specialist Josh finishes the game and puts it on ice. The next day, he heads to his doctor. His pediatrician recommends he goes to the local imaging center for a scan of his leg Based on their initial read, the imaging center refers Josh to an orthopedic surgeon who takes another set of scans $$ $$ $$

14 real world scenario #2 14 Problems with this Current State: Trauma patients arriving hourly with unreadable CDs Very costly duplicate tests Potentially life-threatening delays in treatment for patients Rushed to Local ER Life Flight to Trauma Center Treatment at Trauma Center CT of the head shows that the injury is serious and that Brad needs immediate attention A CD of Brad s CT scan is strapped to his chest Brad arrives but the CD is not readable so more scans are needed before treatment can begin $$$$ $$$$ $$$$

15 real world scenario #3 15 Problems with this Current State: Patients with chronic conditions and ongoing health requirements like yearly mammograms No way to share, track or analyze this valuable patient data A Chronic Condition Diagnosed Yvonne is told by her PCP that she needs to better manage her health & get yearly mammograms Patient Gets Involved to Improve Health Yvonne starts to visit the blood pressure kiosk at her local drug store each month and get yearly mammograms Disconnected Care Continues But when she visits her PCP again, she can t share the data she has been collecting

16 our solutions address the continuum of care 16 Acute Solutions Ambulatory Solutions Partner Solutions Enterprise Departmental Specialty Cross-Platform Rad Cardio Periop Rad Ortho OBGYN Eye Care HIT EMR OEM Interoperability Solutions Clinical Imaging Solutions Specialty EHR Solutions Toolkits & Device Connectivity Consumer Engagement

17 Merge Honeycomb: a cloud based health data warehouse 17

18 marketplace data 18 12% Increase in spending 71% Increasing IT budget 18.7% CAGR over 5 years Average healthcare IT spend is expected to increase by approximately 12% in Source: 2012 Annual Nonprofit Hospital Survey: Reimbursement Risk vs Cost Cuts; & Above-Consensus Capex 71% of hospitals expect to increase their IT budgets. Source: 2012 Annual Nonprofit Hospital Survey: Reimbursement Risk vs Cost Cuts; & Above-Consensus Capex Total clinical healthcare IT market is projected to grow from $7.4 billion in 2011 to nearly $17.5 billion in 2016 increasing at a compound annual growth rate (CAGR) of 18.7 percent over the next five years. Source: Business Communications Company) Leading healthcare IT vendors should continue to enjoy double-digit bookings, revenue, & earnings growth. * * Source: Source: 2012 Annual Nonprofit Hospital Survey: Reimbursement Risk vs Cost Cuts; & Above-Consensus Capex

19 marketplace opportunity 19 Total marketplace opportunity for = $14.7B $14B $1.0B International marketplace Enterprise Imaging $12B $10B $8B $7.8B Acute marketplace - US Enterprise Imaging Departmental Solutions (Radiology, Cardiology, Anesthesia) $6B $4B $2B $0.5B $4B $5.4B Clinical trials marketplace Ambulatory marketplace - US Imaging Centers EHR for Image-Intensive Specialties (Ortho, OB, Eye Care) $0

20 recent highlights & announcements 20 Record pro forma sales of $60.6M in Q3 Executed 12 new iconnect agreements in the image interoperability market Executed 25 contracts for Meaningful Use platform within Radiology and Orthopaedics Unveiled Merge Honeycomb as cloud platform Completed acquisition of Ophthalmic Imaging Systems (OIS) Expanded sales force to over 150 people Announced two new executives to management team Reiterated 2011 annual guidance Provided 2012 annual guidance

21 FINANCIAL OVERVIEW 21

22 strong financial performance and growth 22 > Pro forma revenue (in millions) > Pro forma adjusted EBITDA (in millions) $350 $300 $250 $200 $165 $190 $235 - $240 $288 - $300 $75 $60 $45 $34 $43 $54 - $55 $63 - $72 $150 $30 $100 $50 $15 $0 2009A 2010A 2011E 2012E $0 * ** * ** 2009A 2010A 2011E 2012E 2012 guidance represents 20% - 28% growth over 2011 guidance 2012 guidance represents 15% - 33% growth over 2011 guidance 2011 guidance issued with Q3 earnings on November 8, 2010 ** 2012 guidance issued with Q3 earnings on November 2, 2011

23 pro forma P&L trend: past 5 quarters 23 > Revenue (in millions) > Adjusted EBITDA (in millions) $70 $60 $50 $40 $30 $20 $10 $0 $48.5 $51.1 $54.0 $57.0 $60.6 Q Q Q Q Q $20 $15 $10 $5 $0 $13.0 $13.3 $13.2 Q Q Q $17.0 Q $14.5 Q > Operating income (in millions) > Adjusted net income (in millions) $10 $8 $6 $4 $2 $0 $6.3 $6.2 Q Q $7.1 Q $9.3 Q $7.4 Q $6 $5 $4 $3 $2 $1 $0 $3.2 $3.2 Q Q $2.3 Q $4.8 Q $5.3 Q3 2011

24 Q pro forma results 24 (in millions) Q Q Net sales $60.6 $48.5 Adjusted net income Adjusted EBITDA Adjusted net income per diluted share $0.06 $0.04 Adjusted EBITDA per diluted share $0.16 $0.15 Non-GAAP Recurring revenue as % of net sales ~57.5% ~65.0%

25 revenue snapshot 25 Revenue consists of perpetual software licenses, sale of hardware*, professional services and maintenance** Non Recurring Revenue Includes perpetual software licenses, hardware, and professional services Non Recurring 42.5% Recurring 57.5% Recurring Revenue Includes maintenance contracts*** SaaS offering, DICOM toolkit and EDI * Recognized upon delivery ** Recognized over respective periods services are provided *** Renewed annually

26 2011 YTD strategic investments 26 R&D Commitments > 70 + issued Patents Research & Development represents 12% of revenue YTD in 2011 Sales Commitments Sales force grown to 100 Sales & Marketing represents 16% of revenue YTD in % 16%

27 APPENDIX 27

28 explanation of non-gaap financial measures 28 Merge Healthcare reports its financial results in accordance with generally accepted accounting principles, or GAAP. This press release includes certain non-gaap financial measures to supplement its GAAP information. Non-GAAP measures are not an alternative to GAAP and may be different from non-gaap measures used by other companies. A quantitative reconciliation of GAAP net income available to common shareholders to adjusted net income and adjusted EBITDA is included after the financial information included in this press release. Management believes that the presentation of non-gaap results, when shown in conjunction with corresponding GAAP measures, provides useful information to it and investors regarding financial and business trends related to results of operations, because certain charges, costs and expenses reflect events that are not essential to recurring business operations. In addition, management believes these non-gaap measures provide investors useful information regarding the underlying performance of the post-acquisition business operations when compared to the pre-acquisition results of Merge and any significant acquired company. Purchase accounting adjustments made in accordance with GAAP can make it difficult to make meaningful comparisons of the underlying operations of the business without considering the non- GAAP adjustments that are provided and discussed herein. Further, management believes that these non-gaap measures improve its and investors ability to compare Merge s financial performance with other companies in the technology industry. Management also uses financial statements that exclude these charges, costs and expenses for its internal budgets. While GAAP results are more complete, these supplemental metrics are offered since, with reconciliations to GAAP, they may provide greater insight into our financial results. Management does not intend the presentation of these non-gaap financial measures to be considered in isolation or as a substitute for results prepared in accordance with GAAP. Additional information regarding the non-gaap financial measures presented is as follows: Pro forma revenue consists of GAAP revenue as reported, adjusted to reflect the acquisition of AMICAS as if it had occurred at the beginning of the respective periods presented and to add back the acquisition related sales adjustment (for all significant acquisitions) booked for GAAP purposes.

29 explanation of non-gaap financial measures cont. 29 Recurring revenue is generated from agreements that generally contain a stated annual amount and which we have a high likelihood of renewing each year. More specifically, this includes revenue generated from our DICOM toolkit and efilm Workstation product lines, long-term contracts associated with our Sales as a Service (SaaS) related offerings, and EDI and maintenance contracts across the entire business. Non-recurring revenue backlog represents revenue that we anticipate recognizing in future periods from signed customer contracts as of the end of the period presented. Non-recurring revenue is comprised of all other sources of revenue not included as recurring revenue, primarily from perpetual software licenses, hardware and professional services (including installation, training and consultative engineering services). Adjusted net income consists of GAAP net income available to common stockholders, adjusted to reflect the acquisition of AMICAS as if it had occurred at the beginning of the respective period presented and, to the extent such items occurred in the periods presented, excludes (a) one-time preferred stock deemed dividend at issuance date, (b) one time income tax benefit, (c) impairment of investments, (d) sale of non-core patents, (e) acquisition-related costs, (f) restructuring and other costs, (g) stock-based compensation expense, (h) acquisition-related amortization, and (i) acquisition-related cost of sales adjustments and adds back (j) the acquisition-related sales adjustments. Adjusted EBITDA adjusts GAAP net income available to common stockholders for the items considered in adjusted net income as well as (a) remaining depreciation and amortization, (b) net interest expense, (c) non-cash preferred stock dividends and (d) income tax expense (benefit). Cash from core business operations reconciles the cash generated from such operations to the change in GAAP cash balance for the period by reflecting payments of liabilities associated with our acquisitions, payments of acquisition related fees, interest payments and other payments and receipts of cash not generated by the core business operations.

30 explanation of non-gaap financial measures cont. 30 Management has excluded certain items from non-gaap adjusted net income because it believes (i) the amount of certain expenses in any specific period may not directly correlate to the underlying performance of business operations and (ii) the adjustment facilitates comparisons of pre-acquisition results to post-acquisition results. In addition, the following adjustments are described in more detail below: Acquisition-related amortization expense is a non-cash expense arising from the acquisition of intangible assets in connection with significant acquisitions. Management excludes acquisition-related amortization expense from non-gaap net income because it believes such expenses can vary significantly between periods as a result of new acquisitions and full amortization of previously acquired intangible assets. Stock-based compensation expense is a non-cash expense arising from the grant of stock awards to employees and is excluded from non-gaap net income because management believes such expenses can vary significantly between periods as a result of the timing of grants of new stock-based awards, including grants to new employees resulting from acquisitions. Acquisition related sales and costs of sales adjustments reflect the fair value adjustment to deferred revenues acquired in connection with significant acquisitions. The fair value of deferred revenue represents an amount equivalent to the estimated cost plus an appropriate profit margin to perform services-related software and product support, which assumes a legal obligation to do so, based on the deferred revenue balances as of the date the acquisition of a significant company was completed. Management adds back this deferred revenue adjustment, net of related costs, for non-gaap revenue and non-gaap net income because it believes the inclusion of this amount directly correlates to the underlying performance of operations and facilitates comparisons of pre-acquisition to post-acquisition results.