First quarter financial reports paint generally bright picture for PACS

May 16, 2005

Several companies achieved record revenues last quarter due to increasing demand for postprocessing and PACS equipment. The positive financial reports lend credibility to claims that the image management marketplace has achieved the level of steady growth that has long distinguished the diagnostic imaging industry.

Several companies achieved record revenues last quarter due to increasing demand for postprocessing and PACS equipment. The positive financial reports lend credibility to claims that the image management marketplace has achieved the level of steady growth that has long distinguished the diagnostic imaging industry.

Vital Images reported a 45% jump in revenues and raised its guidance for expectations in 2005, attributing the boom to successful partnerships with Toshiba and McKesson. Cedara Software and Merge eFilm gushed over quarterly results, as the two contemplated becoming one. Cedara reported record revenues that jumped 81% over the same quarter in 2004. Merge eFilm achieved record revenues and operating profits on a 22% bump in sales during the quarter.

Emageon's revenues increased 59% in the first quarter over the same period in the previous year, leading executives to announce that their corporate development plans were on track. The company completed an initial public offering in the first quarter, raising $67.5 million, which has been earmarked for growth initiatives. The surge in revenues was not enough, however, to produce a profit, as the company lost $4.8 million in the quarter, compared with $3.6 million in 1Q 2004.

The only truly disappointing note was sounded by Eastman Kodak, which reported a first quarter loss and decrease in revenues. Much of the loss came from nonmedical-related businesses, but even Kodak's imaging-related businesses struggled. Revenues from the imaging and IT businesses declined 1%, and earnings dropped more than 20%, reflecting lower than expected sales across the company's portfolio of digital products and services. Contributing to the shortfall were problems in computed radiography and the delayed installation of information systems. (X-ray and laser printer businesses performed as expected.)

Much of the news for image management specialists was good. Vital Images garnered $11.3 million in the first quarter, ended March 31, compared with $7.8 million in the first quarter of 2004, a 45% increase. The Minneapolis-based company, which had net income of $1 million compared with a year-earlier net loss of $1.4 million, raised its financial guidance for the year to a range of $46 million to $48 million, representing represent a 27% to 33% increase over 2004 revenue of $36.1 million.

Sales from software options during the first quarter were $4.1 million, up from $3.2 million during the same period in the previous year. Top-selling options continued to be CT Cardiac, CT Vessel Probe, and InnerviewGI. Revenue from maintenance and services increased to $3.4 million, a 69% gain over first-quarter 2004 revenue.

The company noted that it is focusing on the PACS market, largely through its new relationship with McKesson. Vital Images' partnership with Toshiba, through which the company provides visualization tools for use with Toshiba Aquilion CT scanners, accounted for the majority of the company's income, however.

Introduction of ViTALConnect, a thin-client, Web-enabled product that allows the use of PCs or notebook computers to access interactive advanced visualization options, would have contributed more to the bottom line, but the company is deferring revenue from this product. Management wants to ensure it is meeting all revenue recognition requirements for the product per the applicable accounting rules. The company expects to recognize this revenue in the second and third quarters of this year.

Vital Images introduced ViTALCardia during this first quarter. The Web-based visualization product is designed to provide access to images throughout the cardiology enterprise. Toshiba is offering ViTALCardia with its Aquilion 64 CFX multislice CT scanner. Vital Images also launched Version 3.7 of its Vitrea 2 product. New features include Cardiac Functional Analysis and CT Lung options.

Cedara's revenues for the quarter topped $24.4 million, up substantially from $13.5 million in the same quarter of the previous year. It was the second quarter to include the impact of Cedara's acquisition of eMed Technologies, which closed on Oct. 8. Net income rose to $6.2 million, even after deducting expenses related to the still-pending merger with Merge eFilm and accounting adjustments associated with the eMed acquisition. This is 21% better than the $5.1 million the company reported in the same quarter last year.

Revenue growth included a 36% increase in software licenses to $13.2 million. Sales of workstations and other products, including bundled software and hardware, increased to $5.3 million. Support services revenue increased to $3.8 million, while engineering services revenue declined slightly to $2.1 million.

On Jan. 18, Cedara announced it had signed a definitive agreement to merge with Merge eFilm in an all-stock transaction. The union, subject to shareholder and regulatory approval, will be addressed during a special meeting of Cedara shareholders set for May 24.

In the meantime, Merge shareholders can bask in a 22% revenue jump during Q1 to $10.5 million in net sales compared with $8.6 million during the same period in the previous year. Net income was a little over $2 million compared with $1.4 million in the quarter ended March 31, 2004.

Emageon recorded $11.3 million in revenues, compared with $7.1 million in the first quarter of 2004. The company spent more than it took in, however, with its net loss for the quarter growing to $4.8 million from a loss of $3.6 million in the previous year's first quarter. Company executives branded the quarter a success, noting that the company had completed its IPO, raising $67.5 million of new capital to fund growth initiatives.

Eastman Kodak revenues decreased 3% to $2.8 billion from $2.9 billion in the first quarter of 2004, leading to a net loss of $142 million. Sales of healthcare-related products contributed to the losses with a 1% drop in revenues to $626 million. Earnings in this segment were $71 million, compared with $95 million in the previous year's period.

Kodak executives said they were actively addressing issues that led to the disappointing performance in health IT and CR.