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athenahealth, Inc. Reports Third Quarter 2009 Results
  • 37% Revenue Growth Over Third Quarter of 2008
  • 61% Adjusted Gross Margin and 19% Adjusted EBITDA Margin
  • Adjusted Net Income of $5.0 Million, or $0.14 Per Diluted Share

WATERTOWN, Mass., Oct 29, 2009 (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 third quarter of 2009. The Company will conduct a conference call on Friday, October 30, 2009, at 8:00 a.m. Eastern Time to discuss these results and management's outlook for future financial and operational performance.

Total revenue for the three months ended September 30, 2009, was $48.7 million, compared to $35.4 million in the same period last year, an increase of 37%.

"We made great strides in the third quarter on initiatives to improve operational scalability, client performance and market awareness of our unique capabilities" said Jonathan Bush, the Company's Chairman, President, and Chief Executive Officer. "We continue to experience strong growth as medical groups turn to our service-based model in order to improve their clinical, financial and operational performance."

For the three months ended September 30, 2009, non-GAAP Adjusted EBITDA grew to $9.5 million, or 19% of revenue, from non-GAAP Adjusted EBITDA of $6.1 million, or 17% of revenue, in the same period last year. As previously announced, following the reversal of a valuation allowance against U.S. deferred tax assets in the fourth quarter of 2008, the Company's reported GAAP Net Income and non-GAAP Adjusted Net Income now reflect a full GAAP tax rate. Accordingly, non-GAAP Adjusted Net Income for the third quarter of 2009 was $5.0 million, or $0.14 per diluted share, compared to non-GAAP Adjusted Net Income of $4.8 million, or $0.14 per diluted share, in the same period last year. GAAP Net Income for the quarter was $2.1 million, compared to GAAP Net Income of $3.7 million in the same period last year.

"Our differentiated business model continues to yield rapid and reliable growth while our ongoing effort to increase automation has brought us to the threshold of our 2011 target gross margin range," said Carl Byers, the Company's Chief Financial Officer. "This economic engine enables us to make increasing investments in growth and innovation while also driving bottom line progress toward our long-term margin profile."

Byers continued, "While our third quarter bottom line result was flat year-over-year due to application of a full tax rate, for the balance of 2009 our growth and margin momentum is likely to drive meaningful year-over-year bottom line progress."

Key metrics and milestones in the third quarter of 2009 included the following:

 

  • $1.2 billion in collections posted to client accounts in the third quarter of 2009, compared to $0.9 billion in the same quarter of 2008
  • 14,835 active physicians using athenaCollectorSM in the third quarter of 2009, compared to 11,967 in the same quarter of 2008
  • 22,100 active medical providers using athenaCollector in the third quarter of 2009, compared to 17,297 in the same quarter of 2008
  • 1,270 active medical providers using athenaClinicalsSM in the third quarter of 2009, 780 of whom were physicians, compared to 549 providers and 400 physicians in the same quarter of 2008
  • Launched federal stimulus bonus payment guarantee program for physicians nationwide

 

As of September 30, 2009, the Company had cash, cash equivalents, and short-term investments of $104.6 million and short- and long-term debt and capital lease obligations of $12.1 million.

A reconciliation of the Company's financial results determined in accordance with United States Generally Accepted Accounting Principles (GAAP) to certain non-GAAP financial measures has been provided in the financial statement tables included in this press release. An explanation of these measures is also included below under the heading "Explanation of Non-GAAP Financial Measures."

Conference Call Information

To participate in athenahealth's live conference call and webcast, dial 877-852-6580 (719-325-4758 for international calls) using conference code 2478148 or visit the Investors section of the Company's website at: http://www.athenahealth.com. A replay will be available for one week following the conference call at 888-203-1112 (719-457-0820 for international calls) using conference code 2478148. A webcast replay will also be archived on the Company's website following the conference call.

About athenahealth, Inc.

athenahealth, Inc. is a leading provider of Internet-based business services for physician practices. The Company'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 http://www.athenahealth.com or call 888-652-8200.

Explanation of Non-GAAP Financial Measures

athenahealth management believes that in order to properly understand the Company's short-term and long-term financial 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 prepared in accordance with GAAP. These items result from facts and circumstances that vary in frequency and/or impact on continuing operations. In addition, management uses results of operations before such items to evaluate the operational performance of the Company and as a basis for strategic planning. Investors should consider these non-GAAP measures in addition to, and not as a substitute for, financial performance measures prepared in accordance with GAAP. In addition to the description provided below, reconciliations of GAAP to non-GAAP results are provided in the financial statement tables included in this press release.

In this press release the Company defines "Adjusted Gross Margin" as total revenue, less direct operating expense, plus stock-based compensation expense allocated to direct operating expense, and amortization of purchased intangibles, all divided by total revenue.

The Company defines "Adjusted EBITDA" as GAAP Net Income (loss) before (benefit from) provision for income taxes, net interest (income) expense, other (income) expense, unrealized gain/loss on interest rate derivative contract, depreciation and amortization, amortization of purchased intangibles, acquisition-related expenses, and stock-based compensation expense. The Company defines "Adjusted EBITDA Margin" as Adjusted EBITDA as a percentage of total revenue.

The Company defines "Adjusted Operating Income" as GAAP Net Income (loss) before (benefit from) provision for income taxes, net interest (income) expense, other (income) expense, unrealized gain/loss on interest rate derivative contract, amortization of purchased intangibles, acquisition-related expenses, and stock-based compensation expense. The company defines "Adjusted Operating Income Margin" as Adjusted Operating Income as a percentage of total revenue.

The Company defines "Adjusted Net Income" as GAAP Net Income (loss) before other (income) expense, unrealized gain/loss on interest rate derivative contract, amortization of purchased intangibles, acquisition-related expenses, and stock-based compensation expense and "Adjusted Net Income per diluted share" as Adjusted Net Income divided by weighted average diluted shares outstanding.

These non-GAAP financial measures, as the Company defines them, may not be similar to non-GAAP measures used by other companies.

Management believes that Adjusted Gross Margin, Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Operating Income, Adjusted Operating Income Margin, Adjusted Net Income, and Adjusted Net Income per diluted share provide useful information to investors about the Company's performance because they eliminate the effects of period-to-period changes in costs associated with capital investments; net income from interest on the Company's cash, cash equivalents and short-term investments; stock-based compensation expense; and similar expenses that are not directly attributable to the underlying performance of the Company's business operations. Management uses Adjusted Gross Margin, Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Operating Income, Adjusted Operating Income Margin, Adjusted Net Income, and Adjusted Net Income per diluted share in evaluating the overall performance of the Company's business operations and believes that these performance measures provide useful information to investors.

With respect to stock-based compensation expense, the Company advises investors that it has adopted FASB Statement No. 123R, Share-Based Payments ("FAS 123R"), which was primarily codified into Accounting Standards Codification ("ASC") Topic 718 "Compensation - Stock Compensation". FAS 123R was effective January 1, 2006, which requires that share-based payments, including employee stock options, be measured at their fair value and recorded as compensation expense in the Company's financial statements. Prior to the adoption of FAS 123R, the Company was required to record stock-based compensation expense using the awards' intrinsic values, which generally resulted in no compensation expense being recorded in the financial statements. In accordance with the modified prospective method the Company used to adopt FAS 123R, the Company's financial statements for prior periods have not been restated to reflect, and do not include, changes in the method to expense share-based payments (including employee stock options) at their fair values.

Although management finds Adjusted Gross Margin, Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Operating Income, Adjusted Operating Income Margin, Adjusted Net Income, and Adjusted Net Income per diluted share, useful for evaluating aspects of the Company's business, its reliance on these measures is limited because excluded items can have a material effect on the Company's earnings (or losses) calculated in accordance with GAAP. Therefore, management uses Adjusted Gross Margin, Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Operating Income, Adjusted Operating Income Margin, Adjusted Net Income, and Adjusted Net Income per diluted share in conjunction with GAAP Net Income (loss) in evaluating the overall performance of the Company's business operations. The Company believes that Adjusted Gross Margin, Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Operating Income, Adjusted Operating Income Margin, Adjusted Net Income, and Adjusted Net Income per diluted share provide investors with additional tools for evaluating the Company's core performance that are the same as management uses in its own evaluation of overall performance, as well as a baseline for assessing the future earnings potential of the Company. While GAAP results are more complete, the Company offers investors these supplemental metrics since, with reconciliations to GAAP, they may provide greater insight into the Company's 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. These non-GAAP financial measures should be read only in conjunction with the Company's consolidated financial statements prepared in accordance with GAAP.

Forward-Looking Statements

This press release contains forward-looking statements, which are made pursuant to the safe harbor provisions of Private Securities Litigation Reform Act of 1995, including statements regarding expectations for future financial performance, expected growth and business outlook, and the benefits of the Company's current service offerings. 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 our control, that 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: our history of operating losses and fluctuating operating results; our variable sales and implementation sales cycles, which may result in fluctuations in our quarterly results; risks associated with our expectations regarding our ability to maintain profitability; the highly competitive industry in which we operate and the relative immaturity of the market for our service offerings; the risk that our service offerings will not operate in the manner that we expect, including interruptions in service or errors or omissions that may occur in our rules engine and databases; and the evolving and complex governmental and regulatory compliance environment in which we and our 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 our public filings with the Securities and Exchange Commission, including our Annual Report on Form 10-K for the fiscal year ended December 31, 2008, under the heading Part I, Item IA "Risk Factors," available on the Investors section of our 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)

             
      September     December
        30, 2009         31, 2008  
Assets            
Current assets:            
Cash and cash equivalents     $ 27,473       $ 28,933  
Short-term investments       77,090         58,061  
Accounts receivable - net       26,850         23,236  
Deferred tax assets       3,901         8,499  
Prepaid expenses and other current assets       4,959         3,624  
Total current assets       140,273         122,353  
             
Property and equipment - net       23,280         20,871  
Restricted cash       1,516         1,848  
Software development costs - net       2,191         1,879  
Purchased intangibles - net       1,686         1,925  
Goodwill       5,284         4,887  
Deferred tax assets       8,351         7,997  
Other assets       1,163         662  
Total assets     $ 183,744    

 

$ 162,422  
             
Liabilities & Stockholders' Equity            
Current liabilities:            
Current portion of long-term debt and capital lease obligations     $ 3,123       $ 2,038  
Accounts payable       1,090         803  
Accrued compensation       13,808         10,154  
Accrued expenses       7,170         7,442  
Deferred revenue       7,633         6,945  
Interest rate derivative liability       506         881  
Current portion of deferred rent       1,253    

 

  1,144  

Total current liabilities

      34,583         29,407  
Deferred rent, net of current portion       7,742         8,662  
Debt and capital lease obligations, net of current portion       8,954         8,378  
Total liabilities       51,279         46,447  
             
Stockholders' equity:            

Preferred stock, $0.01 par value: 5,000 shares authorized; no shares issued
and outstanding at September 30, 2009 and December 31, 2008, respectively

      -         -  

Common stock, $0.01 par value: 125,000 shares authorized; 34,949 shares issued,
and 33,669 shares outstanding at September 30, 2009; 34,645 shares issued and
33,367 shares outstanding at December 31, 2008.

      349         346  
Additional paid-in capital       165,777         156,303  
Treasury stock, at cost       (1,200 )       (1,200 )
Accumulated other comprehensive income (loss)       (128 )       338  
Accumulated deficit       (32,333 )  

 

  (39,812 )
Total stockholders' equity       132,465         115,975  
Total liabilities and stockholders' equity     $ 183,744       $ 162,422  
               
               

athenahealth, Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited, in thousands, except per-share amounts)

               
  Three Months Ended       Nine Months Ended
  September 30,       September 30,
  2009   2008       2009   2008
Revenue:                  
Business services $ 45,609   $ 33,080       $ 129,933   $ 92,159
Implementation and other 3,083   2,348       7,577   5,997
Total revenue 48,692   35,428       137,510   98,156
                   
Expense:                  
Direct operating 19,652   14,932       57,110   41,795
Selling and marketing 8,963   6,275       24,850   16,308
Research and development 3,748   2,327       10,368   7,269
General and administrative 9,732   6,909       26,327   20,694
Depreciation and amortization 2,098   1,582       5,535   4,612
Total expense 44,193   32,025       124,190   90,678
                   
Operating income 4,499   3,403       13,320   7,478
                   
Other income (expense):                  
Interest income 216   412       938   1,517
Interest expense (270)   (75)       (727)   (203)
(Loss) gain on interest rate derivative contract (125)   -       375   -
Other income 96   38       211   87
Total other (expense) income (83)   375       797   1,401
                   
Income before income taxes 4,416   3,778       14,117   8,879
Income tax provision (2,304)   (78)       (6,638)   (571)
                   
Net income $ 2,112   $ 3,700       $ 7,479   $ 8,308
                   
Net income per share - Basic $ 0.06   $ 0.11       $ 0.22   $ 0.26
                   
Net income per share - Diluted $ 0.06   $ 0.11       $ 0.22   $ 0.24
                   

Weighted average shares used in computing
net income per share

                 
Basic 33,610   32,904       33,520   32,579
Diluted 34,900   34,825       34,707   34,780
               
               

athenahealth, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in thousands)

               
      Nine Months Ended
      September 30,
        2009           2008  
CASH FLOWS FROM OPERATING ACTIVITIES:              
Net income     $ 7,479         $ 8,308  
Adjustments to reconcile net income to net cash provided by operating activities:              
Depreciation and amortization       5,774           4,634  
Amortization of discounts on investments       (366 )         (491 )
Provision for uncollectible accounts       369           348  
Deferred income taxes       6,109           -  
Excess tax benefit from stock-based awards       (1,705 )         -  
Gain on interest rate derivative contract       (375 )         -  
Stock-based compensation expense       6,115           3,534  
Loss on disposal of property and equipment       -           (8 )
Changes in operating assets and liabilities:              
Accounts receivable       (3,983 )         (6,976 )
Prepaid expenses and other current assets       (1,335 )         130  
Accounts payable       412           309  
Accrued expenses       3,116           3,648  
Deferred revenue       688           2,291  
Deferred rent       (811 )         (1,163 )
Other long-term assets       48           76  
Net cash provided by operating activities       21,535           14,640  
               
CASH FLOWS FROM INVESTING ACTIVITIES:              
Capitalized software development costs       (1,759 )         (939 )
Purchases of property and equipment       (6,616 )         (11,483 )
Proceeds from sales and maturities of investments       58,000           18,500  
Proceeds from sales of property and equipment       4,690           12  
Purchases of investment in unconsolidated company       (550 )         (250 )
Purchases of short-term investments       (77,066 )         (57,543 )
Payments for acquisitions net of cash and cash equivalents acquired       (131 )         (6,680 )
Decrease (increase) in restricted cash       332           (135 )
Net cash (used in) provided by investing activities       (23,100 )         (58,518 )
               
CASH FLOWS FROM FINANCING ACTIVITIES:              
Proceeds from issuance of common stock under stock plans       1,655           4,071  
Payments on long-term debt and capital lease obligations       (2,978 )         (526 )
Proceeds from long-term debt       -           7,625  
Deferred financing fees       -           (179 )
Excess tax benefit from stock-based awards       1,705           -  
Net cash provided by financing activities       382           10,991  
Effects of exchange rate changes on cash and cash equivalents       (277 )         (75 )
Net increase (decrease) in cash and cash equivalents       (1,460 )         (32,962 )
Cash and cash equivalents at beginning of period       28,933           71,891  
Cash and cash equivalents at end of period     $ 27,473         $ 38,929  
               

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

    $ 871         $ 324  
               
Supplemental disclosures of cash flow information - Cash paid for interest     $ 632         $ 183  
               
Supplemental disclosures of cash flow information - Cash paid for taxes     $ 514         $ -  
                       

Set forth below is a breakout of stock-based compensation expense for the three and nine months ended September 30, 2009 and 2008:

               
(unaudited, in thousands)     Three Months Ended       Nine Months Ended
      September 30,       September 30,
      2009     2008       2009     2008

Stock-based compensation expense charged to:

                         
Direct operating     $ 400     $ 250       $ 1,175     $ 542
Selling and marketing       535       341         1,578       989
Research and development       255       85         749       585
General and administrative       933       457         2,613       1,418
Total     $ 2,123     $ 1,133       $ 6,115     $ 3,534
                           

Set forth below is a presentation of our "Adjusted Gross Margin":

               
(unaudited, in thousands)     Three Months Ended       Nine Months Ended
      September 30,       September 30,
      2009       2008         2009       2008  
Total revenue     $ 48,692       $ 35,428         $ 137,510       $ 98,156  
Direct operating expense       19,652         14,932           57,110         41,795  

Total revenue less direct operating expense

      29,040         20,496           80,400         56,361  

Stock-based compensation expense
allocated to direct operating expense

      400         250           1,175         542  
Amortization of purchased intangibles       80         22           239         22  
                           
Adjusted gross profit     $ 29,520       $ 20,768         $ 81,814       $ 56,925  
                           
Adjusted gross margin       60.6 %       58.6 %         59.5 %       58.0 %
                           

Set forth below is a reconciliation of our "Adjusted EBITDA" to our net income, the most directly comparable financial measure calculated and presented in accordance with GAAP.

                           
(unaudited, in thousands)     Three Months Ended       Nine Months Ended
      September 30,       September 30,
      2009       2008         2009       2008  
Revenue     $ 48,692       $ 35,428         $ 137,510       $ 98,156  
                           
Net income       2,112         3,700           7,479         8,308  
Loss (gain) on interest rate derivative contract       125         -           (375 )       -  
Provision for income taxes       2,304         78           6,638         571  
Acquisition-related expenses       651         -           651         -  
Interest (income) expense, net       54         (337 )         (211 )       (1,314 )
Other (income)       (96 )       (38 )         (211 )       (87 )
Amortization of purchased intangibles       80         22           239         22  
Depreciation and amortization       2,098         1,582           5,535         4,612  
Stock-based compensation expense       2,123         1,133           6,115         3,534  
                           
Adjusted EBITDA     $ 9,451       $ 6,140         $ 25,860       $ 15,646  
                           
Adjusted EBITDA margin       19.4 %       17.3 %         18.8 %       15.9 %
                           

Set forth below is a reconciliation of our "Adjusted Operating Income" to our net income, the most directly comparable financial measure calculated and presented in accordance with GAAP:

                           
(unaudited, in thousands)     Three Months Ended       Nine Months Ended
      September 30,       September 30,
      2009       2008         2009       2008  
Revenue     $ 48,692       $ 35,428         $ 137,510       $ 98,156  
                           
Net income       2,112         3,700           7,479         8,308  
Loss (gain) on interest rate derivative contract       125         -           (375 )       -  
Provision for income taxes       2,304         78           6,638         571  
Acquisition-related expenses       651         -           651         -  
Interest (income) expense, net       54         (337 )         (211 )       (1,314 )
Other (income)       (96 )       (38 )         (211 )       (87 )
Amortization of purchased intangibles       80         22           239         22  
Stock-based compensation expense       2,123         1,133           6,115         3,534  
                           
Adjusted operating income     $ 7,353       $ 4,558         $ 20,325       $ 11,034  
                           
Adjusted operating income margin       15.1 %       12.9 %         14.8 %       11.2 %
                           

Set forth below is a reconciliation of our "Adjusted Net Income" and "Adjusted Net Income per diluted share" to our net income, the most directly comparable financial measure calculated and presented in accordance with GAAP.

                           
(unaudited, in thousands, except per-share amounts)                          
      Three Months Ended       Nine Months Ended
      September 30,       September 30,
      2009       2008         2009       2008  
Net income     $ 2,112       $ 3,700         $ 7,479       $ 8,308  
Other (income)       (96 )       (38 )         (211 )       (87 )
Acquisition-related expenses       651         -           651         -  
Loss (gain) on interest rate derivative contract       125         -           (375 )       -  
Amortization of purchased intangibles       80    

 

  22      

 

  239    

 

  22  
Stock-based compensation expense       2,123         1,133           6,115         3,534  
                           
Adjusted net income       4,995         4,817           13,898         11,777  
                           
Weighted average shares - diluted       34,900         34,825           34,707         34,780  
                           
Adjusted net income per share - diluted     $ 0.14       $ 0.14         $ 0.40       $ 0.34  
                                           

SOURCE: athenahealth, Inc.

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

Copyright Business Wire 2009

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