Merge Presentation August 2009

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  • 1. Merge Healthcare Business Overview August, 2009
  • 2. Forward-Looking Statements This presentation contains "forward-looking statements," including statements with respect to the financial results the Company currently expects it will report for the third quarter, which are statements related to future, not past, events, and, with respect to such anticipated report of its financial results, are based on the Company’s preliminary review of its operations for such period, and which are unaudited and remain subject to quarter-end and year-end adjustment, as well as potential revision upon completion of our third quarter financial statements and review thereof by our independent registered accounting firm. Forward-looking statements usually describe our expected future business and financial outlook or performance, and often contain words such as “will,” “believes,” “intends,” “anticipates,” “expects,” "plans," "seeks," and similar expressions. Forward-looking statements, by their nature, address matters that are, to varying degrees, uncertain and subject to various known and unknown risks. For us, particular uncertainties and risks that could cause actual results to differ materially from our forward-looking statements include: possible accounting adjustments and revisions to our current preliminary expectations as to the results the Company will report for third quarter financial results; market acceptance and performance of our products and services; the impact of competitive products and pricing; possible delays in the implementation of our managed services offering; the risks and effects of our recent changes in our executive and Board leadership, including the costs and expenses related to severance payments made to departing officers; the risks and effects of our recent securities issues, including the issuance of certain senior secured notes; the past restatement of our financial statements and other actions that may be taken or required as a result of such restatement; 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. *Note that as to Work In Progress, Merge Healthcare is not legally obligated to develop or continue to develop such Works in Progress that may include the features and functionality described herein.
  • 3. Merge Healthcare Merge Healthcare Incorporated builds software solutions that automate healthcare data and diagnostic workflow, to build a better electronic record of the patient experience, and to enhance product development for health IT, device and pharmaceutical companies worldwide. – eClinical Solutions – Medical Imaging Solutions – OEM Toolkits and Technologies – Surgical Management Solutions Working toward a better digital patient experience
  • 4. The Problem We Solve Over half of the world: Our world:
  • 5. Merge’s Competitive Advantage 1 R&D powerhouse – 4 R&D centers (Toronto, Cleveland, Raleigh/Durham and Shanghai) Extensive IP portfolio – 24 patents granted, 31 applications Technology Strong academic and biopharmaceutical relationships Leadership Founding Member of DICOM Standard Committee Sustained R&D investment 2 MergeCOM-3™ – the original DICOM toolkit » The gold standard toolkit for healthcare digital imaging Global Brand eFilm workstation® – the world’s most downloaded DICOM viewer Recognition » Over 100,000 downloads in the last 3 years and sold in over 70 countries etrials ® eClinical Suite – integrated, best-in-class eClinical pioneer » Used in more than 900 clinical trials and 450,000 patients globally 3 Channel Options: Direct, OEM, eCommerce Geography: Global customer base Diversified » Growing percentage of sales outside the US Business Domain: Deep expertise in all stages of medical imaging workflow, surgery management, clinical and business requirements, as well as clinical development Revenue base: solid recurring revenue base + high margin software 4 Former Click Commerce management with proven track record Extensive turnaround and M&A experience Management Team Substantial insider ownership Management team is aligned with shareholders
  • 6. Next Generation Technologies • Handheld device solutions for data input and transfer. • Ability to navigate and manipulate large data sets. • Remote rendering techniques provide immediate access to the entire data set without the need to download data to the mobile device.
  • 7. Sustained Investment in Innovation Product Releases* by Quarter (Q208-Q109) Key 2009 releases: - Cedara ProPlanner™ 48 - Cedara I-ReadMammo™ - eFilm Workstation® 3.1 42 - MergeCOM-3™ HL7 Toolkit 36 - Fusion Hosted RIS/PACS™ 33 28 Key 2008 releases: - MergeCOM-3™ DICOM updates - Cedara xPipe™ - Cedara WebAccess™ - Cedara WebScheduler™ - Merge Mobile™ - Merge Disaster Recovery™ 2Q08 3Q08 4Q08 1Q09 2Q09 *Includes new products, updates and upgrades.
  • 8. Global Brand Recognition eFilm Workstation®: a unique value in radiology for over 10 years Cumulative eFilm downloads (in thousands) 120 #1 downloaded desktop diagnostic imaging 100 software Used in over 70 countries 80 Extensive user database 60 Serves as the basis for eFilmeFilm v1.x v1.x eFilm v2.x v2.x eFilm v3.x v3.x eFilm eFilm building complete imaging 40 solutions and new 20 enterprise customer acquisition 0 2001 2002 2003 2004 2005 2006 2007 2008 2009
  • 9. Global Brand Recognition ~75% of all Modality Vendors ~25% of all Advanced Imaging companies Many market adjacencies (i.e. Non-Destructive Testing) 175 OEM Customers
  • 10. Global Brand Recognition One of the most recognized brands in the eClinical space Used in more than 900 trials 450,000 patients 70 countries All Phases of clinical development Every major therapeutic area
  • 11. Diversified Business Model Healthcare IT market OEM Solutions ISVs OEMs eCommerce Solutions VARs Distributors HC Providers Direct Solutions Clinicians Pharma, Biotech, eClinical Software and Services Medical Device, CROs
  • 12. Business model example: Mammography Multi-modality, vendor-neutral digital mammography workstation Integrated/Standalone/OEM options Hundreds of systems installed
  • 13. Balanced Global Approach – OEM/VAR Relationships
  • 14. eClinical Deployments North America Europe Cardiology Cardiology Immunology/Infectious Disease Endocrinology/Metabolic Musculoskeletal/Rheumatology Gastroenterology Oncology Immunology/Infectious Disease Other Musculoskeletal/Rheumatology Pediatric Psychiatry/CNS Oncology Urology Other Pediatric Asia Psychiatry/CNS Cardiology Respiratory Immunology/Infectious Disease Musculoskeletal/Rheumatology Urology Oncology Women’s Health Psychiatry/CNS Africa South America Cardiology Cardiology Immunology/Infectious Disease Gastroenterology Musculoskeletal/Rheumatology Oncology Australia Immunology/Infectious Disease Psychiatry/CNS Cardiology Musculoskeletal/Rheumatology Immunology/Infectious Disease Oncology Musculoskeletal/Rheumatology Pediatric Oncology Psychiatry/CNS Psychiatry/CNS
  • 15. 2009 Business Objectives • International growth • Investment in brand leader franchises • Leveraging market adjacencies and product extensions • Strategic mergers and acquisitions
  • 16. Q2 International Growth • China – Retained operations in January 2009 – Three new contracts - each for different technology • Russia – Revitalized OEM reseller agreement – New Fusion distribution agreement • India – New OEM reseller agreement – New eFilm Workstation® agreement • Additional distribution agreements adding countries in Europe, Middle East, Central America, Australia
  • 17. Traction in Market Adjacencies • HL7 Toolkit – Leverages DICOM strength to move into general health IT connectivity – Introduced April 2009 – 3 new customers in Q2 • Hosted RIS/PACS – Leverages RIS/PACS strength to offer hosted solution format – Introduced February 2009 – 2 new customers in Q2 • Adjacent segments – OEM deal with leading EHR vendor – Renegotiated OEM deal with largest veterinary imaging vendor
  • 18. M&A – Surgical Solutions/Frontiers • Certain assets acquired on April 15th, 2009 from eko systems, Inc. • Surgical Management System Solutions – Estimated to be less than 10% penetration rate as of 2008 – Opportunity for innovative, nimble, best of breed player – Frontiers product designed by anesthesiologist and proven on the market • New version completed and major customers upgraded in Q2
  • 19. Challenges of Paper Based Anesthesia Records • Patient Safety • Compliance Support – JCAHO – HCFA/CMS – HIPAA – Local Initiatives • Reimbursement – DRG payments – Pharmacy – Materials / Supplies – Accurate Time Capture – Professional Service Through-Put • Management Support – Productivity – QA Activities – Best Practices • Legal Medical Record Frontiers™ provides digital workflow for an electronic record
  • 20. Frontiers – Customer Feedback Mike Abramowitz MD, Fairfax Hospital “Frontiers allows you to spend more time directly with the patient and not with the chart. A good example would be when I have rapid turn cases. Typically, I might have five BMT's to do in an hour. With Frontiers, the documentation is thorough and complete for all my cases. By the time I get to the PACU, the records are finished. If I were charting on paper, I would have to start my records in the recovery room.” John E. Lindsey Jr. MD, President Orthopaedic Anesthesia Specialists, LLC. “Frontiers' user friendly software and intuitive documentation tools have enabled our clinicians to rapidly transition from time consuming paper-based documentation to electronic record keeping. Frontiers has significantly reduced the time we devote to documentation and has thereby provided us with more time to focus on the patient.”
  • 21. M&A – Merge eClinical • Acquired etrials Worldwide Inc. on July 20, 2009 • Clinical trial data management technology and services – One of the last industry segments that have yet to convert from paper to electronic processes • Customer base of major pharmaceutical companies and CROs, as well as small and mid-sized pharma, biotech and medical device companies.
  • 22. eClinical Market Challenge 52 $800M Increasing R&D costs, cost recovery extended • Real pressure to get new and safer drugs to market faster • R&D costs on the rise (clinical & discovery) – by as R&D New much as 50%2 Cost Drugs • Cost recovery time is down by as much as 30%3 Increasing demands by regulatory agencies • Increased regulatory pressure & oversight by FDA and regulatory authorities • Approval process is slowing and arduous • Mandate for use of clinical technologies for submissions and patient reported outcomes 1996 2006 Merge eClinical Proven to Increase the Chance for Trials’ Success by as Much as 30%, While Decreasing Overall Costs by Almost 30% Sources: 1: Big Pharma's Black Hole, 1/22/07, Forbes.com , (http://www.forbes.com/business/2007/01/19/pfizer-pharma-cuts-fda-biz- cz_mh_0122pfizer.html) , 2, 3: Lehman, Tufts and CenterWatch
  • 23. MRGE Financial Highlights Dollars in thousands, except for share data Three Months Ended 9/30/2008 12/31/2008 3/31/2009 6/30/2009 TTM (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) Software and other $ 7,398 $ 7,828 $ 8,684 $ 9,020 $ 32,929 Services and maintenance 7,218 7,233 6,625 6,333 27,409 Total net sales 14,616 15,061 15,309 15,353 60,338 Software and other 1,314 1,279 1,230 880 4,703 Services and maintenance 2,528 2,200 2,150 2,373 9,251 Amortization and impairment 742 1,105 650 623 3,120 Total cost of sales 4,584 4,584 4,030 3,876 17,074 Gross margin 10,032 10,477 11,279 11,477 43,264 Softw are and other GM % 82.2% 83.7% 85.8% 90.2% 85.7% Services and maintenance GM % 65.0% 69.6% 67.6% 62.5% 66.2% Overall GM % 68.6% 69.6% 73.7% 74.8% 71.7% Sales and marketing 1,824 1,817 1,672 1,826 7,139 Product research and development 2,931 2,089 2,271 2,543 9,834 General and administrative 3,483 2,368 3,252 2,104 11,207 Restructuring & other expenses (205) (46) - - (251) Depreciation & amortization 654 576 548 546 2,324 Acquisition-related expenses - - - 339 339 Total operating costs and expenses 8,687 6,804 7,743 7,359 30,593 Operating income 1,345 3,673 3,536 4,119 12,671 Other expense 648 1,700 672 3,652 6,671 Income before taxes 697 1,973 2,864 467 5,999 Income tax expense 269 55 22 21 366 Net income $ 428 $ 1,918 $ 2,842 $ 446 $ 5,633 EPS - diluted $ 0.01 $ 0.03 $ 0.05 $ 0.01 $ 0.10 Weighted average shares outstanding - diluted 56,859 56,792 57,190 57,905 57,905
  • 24. Key Financial Metrics Gross Margin % Operating Income Margin % EBITDA Margin %* Net Income Margin %* 74.8 73.7 69.6 68.6 40.6 41.1 34.8 31.1 26.8 26.0 24.4 23.1 22.3 21.1 17.9 18.6 12.7 9.2 2.9 2.9 Q3 2008 Q4 2008 Q1 2009 Q2 2009 * Dotted lines represent EBITDA and Net Income adjusted for non-cash equity impairment of 1.4M and 3.5M for Q4 08 and Q209, respectively.
  • 25. Contact Us Thank you Julie Pekarek, CMO Merge Healthcare jpekarek@merge.com 414.977.4254