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athenahealth, Inc. Reports First Quarter Fiscal Year 2010 Results

- 33% Revenue Growth Over First Quarter of 2009
- GAAP Net Income of $0.3 Million, or $0.01 Per Diluted Share
- Non-GAAP Adjusted Net Income of $2.3 Million, or $0.06 Per Diluted Share

WATERTOWN, Mass., Apr 29, 2010 (BUSINESS WIRE) -- athenahealth, Inc. (Nasdaq: ATHN), (the "Company"), a leading provider of Internet-based business services for physician practices, today announced financial and operational results for the first quarter of fiscal year 2010. The Company will conduct a conference call on Friday, April 30, 2010, at 8:00 a.m. Eastern Time to discuss these results and management's outlook for future financial and operational performance. In addition, the Company has furnished prepared remarks in conjunction with this press release via a Current Report on Form 8-K. These prepared remarks, including a supplemental document containing non-financial metrics commonly reported with quarterly results, are available within the Investors section of the Company's website at www.athenahealth.com.

Total revenue for the three months ended March 31, 2010, was $54.5 million, compared to $41.0 million in the same period last year, an increase of 33%.

"We believe that athenahealth's strategic position has never been stronger," said Jonathan Bush, the Company's Chairman, President, and Chief Executive Officer. "Demand for our services is increasing and at the same time, a confluence of change and complexity is occurring within the physician market. For this reason, it is vital that we drive awareness of athenahealth higher to take advantage of these opportunities with increased investments in sales and marketing."

For the three months ended March 31, 2010, Non-GAAP Adjusted Gross Margin was 58.5%, up from 55.9% in the same period last year. Non-GAAP Adjusted EBITDA was $6.4 million, or 12% of total revenue, compared to Non-GAAP Adjusted EBITDA of $6.1 million, or 15% of total revenue in the same period last year. GAAP Net Income for the first quarter of 2010 was $0.3 million, or $0.01 per diluted share compared to GAAP Net Income of $1.5 million or $0.04 per diluted share in the same period last year. Non-GAAP Adjusted Net Income was $2.3 million, or $0.06 per diluted share compared to $2.6 million or $0.08 per diluted share in the same period last year. As planned, the Company's bottom line results were impacted by increased investments in sales and marketing as well as higher general and administrative expense of approximately $1.0 million related to the Company's recent accounting review and restatement process.

"We are very pleased with the Company's strong year-over-year revenue growth of 33%," said Tim Adams, the Company's Chief Financial Officer. "As projected during our Q4 earnings call, our Non-GAAP Adjusted Gross Margin expanded year-over-year, but higher indirect expense levels caused our bottom line profitability to decline. We continue to believe that year-over-year expansion in Non-GAAP Adjusted Gross Margins as well as general and administrative expense leverage will drive year-over-year expansion in bottom line profitability during the back half of the year. At the same time, we expect to maintain our investments in sales and marketing and believe that this expense, on a GAAP basis, should approximate at least 20% of total revenue for the full year 2010."

Key metrics and milestones in the first quarter of 2010 included the following:

 

  • $1.3 billion in collections posted to client accounts, compared to $1.1 billion in the same quarter of 2009
  • 40.0 average client Days in Accounts Receivable (DAR), compared to 44.3 average client DAR in the same quarter of 2009
  • 16,369 active physicians using athenaCollectorSM at March 31, 2010, compared to 13,196 at March 31, 2009
  • 23,978 active medical providers using athenaCollector at March 31, 2010, compared to 19,739 at March 31, 2009
  • 1,867 active medical providers using athenaClinicalsSM at March 31, 2010, 1,275 of which were physicians, compared to 949 providers and 574 physicians at March 31, 2009
  • Launched athenaCommunicatorSM service for patient cycle management on March 17, 2010

 

As of March 31, 2010, the Company had cash, cash equivalents, and short-term investments of $79.1 million and short- and long-term debt and capital lease obligations of $11.9 million.

Use of Non-GAAP Financial Measures

In the Company's earnings releases, conference calls, slide presentations, or webcasts, the Company may use or discuss non-GAAP financial measures as defined by SEC Regulation G. The GAAP financial measure most directly comparable to each non-GAAP financial measure used or discussed, and a reconciliation of the differences between each non-GAAP financial measure and the comparable GAAP financial measure, are included in this press release after the condensed consolidated financial statements. The Company's earnings press releases containing such non-GAAP reconciliations can be found on the Investors section of the Company's web site at http://www.athenahealth.com.

Conference Call Information

To participate in the Company's live conference call and webcast, please dial 877-303-6175 (678-809-1072 for international calls) using conference code No. 67247338 or visit the Investors section of the Company's web site: www.athenahealth.com. A replay will be available for one week following the conference call at 800-642-1687 (706-645-9291 for international calls) using conference code No. 67247338. A webcast replay will also be archived on the Company's website.

About athenahealth

athenahealth, Inc. is a leading provider of Internet-based business services for physician practices. athenahealth's service offerings are based on proprietary web-native practice management and electronic health record (EHR) software, a continuously updated payer knowledge-base, integrated back-office service operations, and automated and live patient communication services. For more information, please visit www.athenahealth.com or call (888) 652-8200.

Forward-Looking Statements

This press release contains forward-looking statements, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including statements reflecting management's expectations for future financial and operational performance and operating expenditures, expected growth, profitability and business outlook, and the benefits of the Company's current service offerings, including statements found under the Company's Reconciliation of Non-GAAP Financial Measures section of this release. The forward-looking statements in this release do not constitute guarantees of future performance. These statements are neither promises nor guarantees, and are subject to a variety of risks and uncertainties, many of which are beyond the Company's control, which could cause actual results to differ materially from those contemplated in these forward-looking statements. In particular, the risks and uncertainties include, among other things: the Company's fluctuating operating results; the Company's variable sales and implementation cycles, which may result in fluctuations in its quarterly results; risks associated with its expectations regarding its ability to maintain profitability; the impact of increased sales and marketing expenditures, including whether increased expansion in revenues is attained and whether impact on margins and profitability is longer term than expected; changes in tax rates or exposure to additional tax liabilities; the highly competitive industry in which the Company operates and the relative immaturity of the market for its service offerings; and the evolving and complex governmental and regulatory compliance environment in which the Company and its clients operate. Existing and prospective investors are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company undertakes no obligation to update or revise the information contained in this press release, whether as a result of new information, future events or circumstances, or otherwise. For additional disclosure regarding these and other risks faced by the Company, see the disclosures contained in its public filings with the Securities and Exchange Commission, available on the Investors section of the Company's website at http://www.athenahealth.com and on the SEC's website at http://www.sec.gov.

 

athenahealth, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands, except per share amounts)

               
           

March
31, 2010

     

December
31, 2009

 
Assets              
Current assets:              
Cash and cash equivalents         $ 20,254     $ 30,526  
Short-term investments           58,828       52,323  
Accounts receivable - net           34,232       33,323  
Deferred tax assets           5,450       5,544  
Prepaid expenses and other current assets           6,471       4,663  
Total current assets           125,235       126,379  
Property and equipment - net           30,105       24,871  
Restricted cash           8,885       9,216  
Software development costs - net           2,493       2,324  
Purchased intangibles - net           14,030       14,490  
Goodwill           22,120       22,120  
Deferred tax assets           10,226       10,284  
Other assets           1,546       1,393  
Total assets         $ 214,640  

 

$ 211,077  
               
Liabilities & Stockholders' Equity              
Current liabilities:              
Current portion of long-term debt and capital lease obligations         $ 3,440     $ 3,437  
Accounts payable           1,769       1,880  
Accrued compensation           12,364       15,774  
Accrued expenses           10,374       10,781  
Current portion of deferred revenue           4,731       4,038  
Interest rate derivative liability           351       291  
Current portion of deferred rent           1,334  

 

  1,288  
Total current liabilities           34,363       37,489  
Deferred rent, net of current portion           7,098       7,444  
Deferred revenue, net of current portion           29,955       28,684  
Other long-term liabilities           1,191       1,191  
Debt and capital lease obligations, net of current portion           8,423       8,951  
Total liabilities           81,030       83,759  
               
               
Stockholders' equity:              

Preferred stock, $0.01 par value: 5,000 shares authorized; no shares issued
and outstanding at March 31, 2010 and December 31, 2009, respectively

          -       -  

Common stock; $0.01 par value: 125,000 shares authorized; 35,349 shares issued,
and 34,072 shares outstanding at March 31, 2010; 35,166 shares issued and
33,888 shares outstanding at December 31, 2009.

          353       352  
Additional paid-in capital           175,767       169,715  
Treasury stock, at cost, 1,278 shares           (1,200 )     (1,200 )
Accumulated other comprehensive loss           (111 )     (73 )
Accumulated deficit           (41,199 )

 

  (41,476 )
Total stockholders' equity           133,610       127,318  
Total liabilities and stockholders' equity         $ 214,640     $ 211,077  
               
               

athenahealth, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except per share amounts)

           
          Three Months Ended
          March 31,
            2010       2009  
Revenue:             (as restated)
Business services         $ 52,565     $ 39,895  
Implementation and other           1,912       1,133  
Total revenue           54,477       41,028  
               
Expense:              
Direct operating           23,519       18,561  
Selling and marketing           12,060       6,999  
Research and development           4,074       3,181  
General and administrative           11,677       8,201  
Depreciation and amortization           2,420       1,639  
Total expense           53,750       38,581  
               
Operating income           727       2,447  
               
Other income (expense):              
Interest income           78       402  
Interest expense           (217 )     (174 )
(Loss) gain on interest rate derivative contract           (60 )     192  
Other income           30       36  
Total other income (expense)           (169 )     456  
               
Income before income taxes           558       2,903  
Income tax provision           (281 )     (1,365 )
               
Net income         $ 277     $ 1,538  
               
Net income per share - Basic         $ 0.01     $ 0.05  
               
Net income per share - Diluted         $ 0.01     $ 0.04  
               
Weighted average shares used in computing net income per share              
Basic           34,014       33,418  
Diluted           35,201       34,814  
                       
                       

athenahealth, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)

           
          Three Months Ended
          March 31,
            2010       2009  
CASH FLOWS FROM OPERATING ACTIVITIES:             (as restated)
Net income         $ 277     $ 1,538  
Adjustments to reconcile net income to net cash provided by operating activities:              
Depreciation and amortization           2,880       1,719  
Amortization of premiums (discounts) on investments           381       (292 )
Provision for uncollectible accounts           213       104  
Deferred income tax           152       1,365  
Loss on fair value of contingent consideration           304       -  
Stock-based compensation expense           2,784       1,916  
Loss (gain) on interest rate derivative contract           60       (192 )
Changes in operating assets and liabilities:              
Accounts receivable           (1,122 )     295  
Prepaid expenses and other current assets           (1,808 )     (181 )
Other long-term assets           (153 )     16  
Accounts payable           (392 )     869  
Accrued expenses           (4,121 )     (3,592 )
Deferred revenue           1,964       1,218  
Deferred rent           (300 )     (283 )
Net cash provided by operating activities           1,119       4,500  
               
CASH FLOWS FROM INVESTING ACTIVITIES:              
Capitalized software development costs           (703 )     (449 )
Purchases of property and equipment           (6,836 )     (2,142 )
Proceeds from sale or disposal of property and equipment           362       1,803  
Proceeds from sales and maturities of investments           20,750       14,500  
Purchases of short-term investments           (27,691 )     (25,762 )
Decrease in restricted cash           332       332  
Net cash (used in) investing activities           (13,786 )     (11,718 )
               
CASH FLOWS FROM FINANCING ACTIVITIES:              
Proceeds from issuance of common stock under stock plans           3,269       530  
Payments on long-term debt and capital lease obligation           (887 )     (1,643 )
Net cash provided by financing activities           2,382       (1,113 )
Effects of exchange rate changes on cash and cash equivalent           13       (75 )
Net (decrease) in cash and cash equivalents           (10,272 )     (8,406 )
Cash and cash equivalents at beginning of period           30,526       28,933  
Cash and cash equivalents at end of period         $ 20,254     $ 20,527  
               

Supplemental disclosures of non-cash items - Property and equipment recorded
in accounts payable and accrued expenses

        $ 229     $ 538  
Supplemental disclosures - Cash paid for interest         $ 117     $ 90  
Supplemental disclosures - Change in fair value of contingent consideration         $ 304     $ -  
Supplemental disclosures - Cash paid for taxes         $ 983     $ -  
Property and equipment acquired under capital leases         $ 363     $ 1,803  
                       
                       

athenahealth, Inc.
STOCK-BASED COMPENSATION EXPENSE
(Unaudited, in thousands)

           

Set forth below is a breakout of stock-based compensation expense for the three months ended March 31, 2010 and 2009:

 
(unaudited, in thousands)         Three Months Ended
          March 31,
            2010     2009
Stock-based compensation charged to:              
Direct operating         $ 468   $ 375
Selling and marketing           690     514
Research and development           324     243
General and administrative           1,302     784
Total         $ 2,784   $ 1,916
                   
                   

athenahealth, Inc.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
TO COMPARABLE GAAP MEASURES
(Unaudited, in thousands, except per share amounts)

The following is a reconciliation of the non-GAAP financial measures used by the Company to describe the Company's financial results determined in accordance with United States generally accepted accounting principles (GAAP). An explanation of these measures is also included below under the heading "Explanation of Non-GAAP Financial Measures" set forth below.

While management believes that these non-GAAP financial measures provide useful supplemental information to investors regarding the underlying performance of the Company's business operations, investors are reminded to consider these non-GAAP measures in addition to, and not as a substitute for, financial performance measures prepared in accordance with GAAP. In addition, it should be noted that these non-GAAP financial measures may be different from non-GAAP measures used by other companies, and management may utilize other measures to illustrate performance in the future. Non-GAAP measures have limitations in that they do not reflect all of the amounts associated with the Company's results of operations as determined in accordance with GAAP.

Non-GAAP Adjusted Gross Margin

Set forth below is a presentation of the Company's "Non-GAAP Adjusted Gross Profit" and "Non-GAAP Adjusted Gross Margin," which represents Non-GAAP Adjusted Gross Profit as a percentage of total revenue.

(unaudited, in thousands)         Three Months Ended
          March 31,
          2010   2009
              (As Restated)
Total revenue         $ 54,477   $ 41,028
Direct operating expense         23,519   18,561

Total revenue less direct operating expense

        30,958   22,467

Add: Stock-based compensation expense allocated to direct operating expense

        468   375
Add: Amortization of purchased intangibles         460   80
               
Non-GAAP Adjusted Gross Profit         $ 31,886   $ 22,922
               
Non-GAAP Adjusted Gross Margin         58.5%   55.9%
               
               

Non-GAAP Adjusted EBITDA

Set forth below is a reconciliation of the Company's "Non-GAAP Adjusted EBITDA" and "Non-GAAP Adjusted EBITDA Margin," which represents Non-GAAP Adjusted EBITDA as a percentage of total revenue.

(unaudited, in thousands)         Three Months Ended
          March 31,
            2010       2009  
              (As Restated)
Total revenue         $ 54,477     $ 41,028  
               
GAAP net income           277       1,538  
Add: Provision for income taxes           281       1,365  
Add (less) : Total other (income) expense           169       (456 )
Add: Stock-based compensation expense           2,784       1,916  
Add: Depreciation and amortization           2,420       1,639  
Add: Amortization of purchased intangibles           460       80  
               
Non-GAAP Adjusted EBITDA         $ 6,391     $ 6,082  
               
Non-GAAP Adjusted EBITDA Margin           11.7 %     14.8 %
                       
                       

Non-GAAP Adjusted Operating Income

Set forth below is a reconciliation of the Company's "Non-GAAP Adjusted Operating Income" and "Non-GAAP Adjusted Operating Income Margin." Non-GAAP Adjusted Operating Income Margin represents Non-GAAP Adjusted Operating Income as a percentage of total revenue.

(unaudited, in thousands)         Three Months Ended
          March 31,
            2010       2009  
              (As Restated)
Total revenue         $ 54,477     $ 41,028  
               
GAAP net income         $ 277     $ 1,538  
Add: Provision for income taxes           281       1,365  
Add (less) : Total other (income) expense           169       (456 )
Add: Stock-based compensation expense           2,784       1,916  
Add: Amortization of purchased intangibles           460       80  
               
Non-GAAP Adjusted Operating Income         $ 3,971     $ 4,443  
               
Non-GAAP Adjusted Operating Income Margin           7.3 %     10.8 %
                       
                       

Non-GAAP Adjusted Net Income

Set forth below is a reconciliation of the Company's "Non-GAAP Adjusted Net Income" and "Non-GAAP Adjusted Net Income per Diluted Share."

(unaudited, in thousands except per share amounts)         Three Months Ended
          March 31,
            2010       2009  
              (As Restated)
GAAP net income         $ 277     $ 1,538  
(Less) Add: (Gain) loss on interest rate derivative           60       (192 )
Add: Stock-based compensation expense           2,784       1,916  
Add: Amortization of purchased intangibles           460       80  
               
Sub-total of tax deductible items           3,304       1,804  
               
(Less): Tax impact of tax deductible items (1)           (1,322 )     (722 )
               
Non-GAAP Adjusted Net Income         $ 2,259     $ 2,620  
               
Weighted average shares - diluted           35,201       34,814  
               
Non-GAAP Adjusted Net Income per Diluted Share         $ 0.06     $ 0.08  
               
(1) - Tax impact calculated using federal statutory tax rate of 34% and a blended state tax rate of 6%

*Note that Other (income) expense is no longer excluded per revised non-GAAP methodology as discussed
in our Current Report on Form 8-K filed with the SEC on February 4, 2010

(unaudited, in thousands except per share amounts)         Three Months Ended
          March 31,
            2010       2009  
              (As Restated)
GAAP net income per share - diluted         $ 0.01     $ 0.04  
(Less) Add: (Gain) loss on interest rate derivative           -       -  
Add: Stock-based compensation expense           0.08       0.06  
Add: Amortization of purchased intangibles           0.01       -  
               
Sub-total of tax deductible items           0.09       0.06  
               
(Less): Tax impact of tax deductible items (1)           (0.04 )     (0.02 )
               
Non-GAAP Adjusted Net Income per Diluted Share         $ 0.06     $ 0.08  
               
Weighted average shares - diluted           35,201       34,814  
               

(1) - Tax impact calculated using federal statutory tax rate of 34% and a blended state tax rate of 6%

*Note that Other (income) expense is no longer excluded per revised non-GAAP methodology as discussed
in our Current Report on Form 8-K filed with the SEC on February 4, 2010

 
 

Explanation of Non-GAAP Financial Measures

The Company reports its financial results in accordance with United States generally accepted accounting principles, or GAAP. However, management believes that in order to properly understand the Company's short-term and long-term financial and operational trends, investors may wish to consider the impact of certain non-cash or non-recurring items, when used as a supplement to financial performance measures in accordance with GAAP. These items result from facts and circumstances that vary in frequency and/or impact on continuing operations. Management also uses results of operations before such items to evaluate the operating performance of the Company and compare it against past periods, make operating decisions, and serve as a basis for strategic planning. These non-GAAP financial measures provide management with additional means to understand and evaluate the operating results and trends in the Company's ongoing business by eliminating certain non-cash expenses and other items that management believes might otherwise make comparisons of the Company's ongoing business with prior periods more difficult, obscure trends in ongoing operations, or reduce management's ability to make useful forecasts. Management believes that these non-GAAP financial measures provide additional means of evaluating period-over-period operating performance. In addition, management understands that some investors and financial analysts find this information helpful in analyzing the Company's financial and operational performance and comparing this performance to its peers and competitors.

Management defines "Non-GAAP Adjusted Gross Profit" as total revenue, less direct operating expense, plus stock-based compensation expense allocated to direct operating expense and amortization of purchased intangibles, and "Non-GAAP Adjusted Gross Margin" as non-GAAP Adjusted Gross Profit as a percentage of total revenue. Management considers these non-GAAP financial measures to be important indicators of the Company's operational strength and performance of its business and a good measure of its historical operating trends. Moreover, management believes that these measures enable investors and financial analysts to closely monitor and understand changes in the Company's ability to generate income from ongoing business operations.

Management defines "Non-GAAP Adjusted EBITDA" as the sum of GAAP net income before provision for (benefit from) income taxes, total other (income) expense, stock-based compensation expense, depreciation and amortization, acquisition-related expenses and amortization of purchased intangibles and "Non-GAAP Adjusted EBITDA Margin" as Non-GAAP Adjusted EBITDA as a percentage of total revenue. Management defines "Non-GAAP Adjusted Operating Income" as the sum of GAAP net income before provision for (benefit from) provision for income taxes, total other (income) expense, stock-based compensation expense, acquisition-related expenses and amortization of purchased intangibles and "Non-GAAP Adjusted Operating Income Margin" as Non-GAAP Adjusted Operating Income as a percentage of total revenue. Management defines "Non-GAAP Adjusted Net Income" as the sum of GAAP net income before unrealized (gain) loss on an interest rate derivative, stock-based compensation expense, acquisition-related expenses, amortization of purchased intangibles, and any tax impact related to these items, and "Non-GAAP Adjusted Net Income per Diluted Share" as Non-GAAP Adjusted Net Income divided by weighted average diluted shares outstanding. Management considers these non-GAAP financial measures to be important indicators of the Company's operational strength and performance of its business and a good measure of its historical operating trends, in particular the extent to which ongoing operations impact the Company's overall financial performance.

Management excludes each of the items identified below from the applicable non-GAAP financial measure referenced above for the reasons set forth with respect to that excluded item:

 

  • Stock-based compensation expense -- excluded because these are non-cash expenses that management does not consider part of ongoing operating results when assessing the performance of the Company's business, and also because the total amount of expense is partially outside of the Company's control because it is based on factors such as stock price volatility and interest rates, which may be unrelated to our performance during the period in which the expense is incurred.
  • Acquisition-related expenses and amortization of purchased intangibles -- acquisition-related expenses are reported at the time acquisition costs are incurred, and purchased intangibles are amortized over a period of several years after the acquisition and generally cannot be changed or influenced by management after the acquisition. Accordingly, these items are not considered by management in making operating decisions, and management believes that such expenses do not have a direct correlation to future business operations. Thus, including such charges does not accurately reflect the performance of the Company's ongoing operations for the period in which such charges are incurred.
  • Unrealized gains and losses on interest rate derivative -- excluded because until they are realized, to the extent these gains or losses impact a period presented, management does not believe that they reflect the underlying performance of ongoing business operations for such period.

Click here to view Q1 2010 Prepared Remarks and Supplemental Metrics Sheet.

 

SOURCE: athenahealth, Inc.

(Investors)
athenahealth, Inc.
Jennifer Heizer, 617-402-1322
Director, Investor Relations
investorrelations@athenahealth.com
or
(Media)
athenahealth, Inc.
John Hallock, 617-402-1428
Director, Corporate Communications
media@athenahealth.com

Copyright Business Wire 2010

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