INVESTOR PRESENTATION. Merge Healthcare February / March 2012

Transcription

1 INVESTOR PRESENTATION Merge Healthcare February / March 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 THE MERGE STORY

4 our company 4 our company Traded on NASDAQ Exchange (MRGE) Over 900 employees worldwide Revenue guidance of $288M -$300M for FY12 Co-founder and #1 provider of DICOM solutions globally Over 70 patents in imaging and healthcare information technology our solutions Interoperability Clinical Imaging Specialty EHR Toolkits & Device Connectivity Clinical Trials Consumer Engagement 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 clients 5 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 1/3of all US Imaging Centers 50%of all digital Ortho Groups annual market 2,000 size Ophthalmology sites 75% of all Top worldwide pharmaceutical modality companies use vendors use Merge to run Merge in their their clinical systems trials Partnered with the leading HIT organizations The largest network of healthcare stations in the nation

6 our US footprint 6 The Largest National Imaging Network

7 our brand 7 innovation performance energy.

8 our portfolio: addresses the entire continuum of care 8 Acute Solutions Enterprise Departmental Ambulatory Solutions Specialty Partner Solutions 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

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 meaningful use: stage 2 The proposed Stage 2 rules include three exciting developments for Merge: Imaging is In:Imaging will be one of five menu objectives for eligible professionals Interoperability is Key: Health information exchange will be ramped up Patient Engagement is More Important Than Ever: Hospitals and practices will have to allow 50% of patients to view, download, and transfer electronic copies of their medical records

12 longer term trends 12 Everything is moving to the cloud Consumers will control everything Everything is going digital

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 Merge Honeycomb: a cloud based health data warehouse 15

16 THE MERGE OPPORTUNITY

17 Q4 2011: recent highlights 17 Signed iconnect contract with Cincinnati Children s Hospital, the nation s #3 pediatric hospital, increasing Merge iconnect client base to 42 Extended enterprise-wide imaging partnerships with large healthcare organizations including: DuPageMedical Group, one of the largest medical groups in the country Southern Illinois Healthcare, a prominent system consisting of six hospitals and healthcare clinics Executed 16 contracts for Merge Healthcare s Meaningful Use (MU) platform within Radiology and Orthopaedics, bringing total MU client base to iconnect Clients Enterprise Imaging Increasing 77 Meaningful Use Clients

18 2012 US market trends: HIT spending growth 18 12% Increase in spending 71% Increasing IT budget 18.7% CAGRover 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

19 2012 global market trends: PACS growth 19 Key Takeaway: PACS is GROWING

20 total marketplace opportunity 20 Total marketplace opportunity for = $16.7B $16B $14B $12B $10B $1.0B $7.8B International marketplace Enterprise Imaging Acute marketplace - US Enterprise Imaging Departmental Solutions (Radiology, Cardiology, Anesthesia) $8B $6B $2.5B Clinical trials marketplace $4B $4B $2B $5.4B Ambulatory marketplace - US Imaging Centers EHR for Image-Intensive Specialties (Ortho, OB, Eye Care) $0

21 2012 growth strategies 21 Cross Sell & Upsell Client Base 1,500 hospitals and 6,000 clinics are Merge clients Average client has only 1 Merge solution Solutions: iconnect, Radiology, Cardiology, Periop, etc. Enterprise-Wide Imaging Meaningful Use Cardiology & Radiology two largest imaging specialties Post Phase 1 requirements & meaningful ROI Solutions: iconnect, Archive Achieve Phase 1 for clients Prepare for Phase 2 and 3 Solutions: Complete certified EHRs for Radiology, Ortho, OBGYN Image Enable HIEs 255 HIE's& virtually none have considered imaging Now they are starting that process Solutions: iconnect Other Markets Clinical Trials, Partner Sales, Patient Engagement Solutions: Clinical Trials Suite, Toolkits, Health Stations

22 MERGE FINANCIALS

23 strong financial performance 23 > Pro forma revenue (in millions) > Pro forma adjusted EBITDA (in millions) $350 $300 $250 $200 $150 $165 $190 $237 $288 - $300 $75 $60 $45 $30 $34 $43 $60 $63 - $72 $100 $50 $15 $0 2009A 2010A 2011A 2012E $0 2009A 2010A 2011A 2012E * * * 2012 guidance issued with Q3 earnings on November 2, 2011

24 pro forma results 24 ($inmillionsexceptforpersharedata) Q Q FY2011 FY2010 Net sales $65.1 $51.1 $236.7 $190.7 Adjusted net income $4.2 $3.2 $16.8 $1.6 Adjusted EBITDA $15.1 $13.3 $60.0 $43.4 Adjusted net income per diluted share $0.04 $0.04 $0.19 $0.02 Adjusted EBITDA per diluted share $0.16 $0.16 $0.67 $0.51 Year over Year: Net Sales up 24% Adjusted net income per share up 850% Adjusted EBITDA per share up 31%

25 pro forma P&L trends: our business model works 25 > Gross Margin Expansion (as % of Revenue) > Sales & Marketing Investment (as % of Revenue) 64% 62% 60% 58% 56% 54% 52% 50% 62.2% 58.0% 55.1% % 15% 10% 5% 0% 13.9% 13.2% 16.4% > R & D Synergies (as % of Revenue) > G & A Savings (as % of Revenue) 20% 15% 15.3% 13.5% 11.6% 20% 15% 14.8% 14.7% 13.8% 10% 10% 5% 5% 0% %

26 revenue snapshot 26 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 Non 45.0% Recurring 42.5% Recurring 55.0% 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

27 investment highlights 27 Significant Growth Pro Forma 2012: $288 - $300M (revenue guidance) 2011: $236.7M 2010: $190M Favorable Macro Industry Conditions Revenue Visibility Economic and government environment are driving change Meaningful Use will help to accelerate demand Healthcare Consumerism is exploding High, recurring revenue model Large, diversified client base Largest national footprint of imaging clinics & healthcare ATMS Strong, Seasoned Leadership Seasoned management team with extensive experience Operational expertise and track record of delivering organic growth

28 APPENDIX

29 explanation of non-gaap financial measures 29 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.

30 explanation of non-gaap financial measures cont. 30 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.

31 explanation of non-gaap financial measures cont. 31 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.