Leading vendor of cloud-based services for physician practices
) reported third quarter 2012 adjusted (excluding one-time items
other than stock-based compensation expense) earnings per share
of 18 cents. It beat the Zacks Consensus Estimate of 17 cents per
share as well as the year-ago earnings of 15 cents.
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Reported net income in the third quarter increased 17.6% year
over year to $6.2 million (or 17 cents per share).
Revenues climbed 26% year over year to $105.9 million in the
quarter. Revenues missed the Zacks Consensus Estimate of $109
million and were below the company's expectation.
On a segment-wise basis, revenues from Business Services surged
26.8% year over year to $102.3 million while Implementation and
Other revenues improved 17.1% to $3.6 million.
Utilization of athenaCollector by medical providers and
physicians grew 20.4% and 20.2% respectively, year over year in
the third quarter. Furthermore, the use of athenaClinicals by
medical providers and physicians jumped 72% and 74.7%
respectively, year over year. The utilization of
athenaCommunicator increased almost three fold to 12,149 medical
providers (of whom 8,739 were physicians) from 4,117 medical
providers (of whom 2,931 were physicians) in the year-ago
Adjusted gross margin decreased 110 basis points year over year
to 62.7% whereas adjusted operating margin increased 140 basis
points to 18.3% in the quarter. Adjusted EBITDA improved 38% year
over year to $26 million (24.6% of total revenues).
Athenahealth ended the third quarter with cash and cash
equivalents and short-term investments of $180.2 million, up
52.1% year over year. Its balance sheet had zero debt.
Athenahealth's web-based deployment provides a low-cost scalable
service while its flexible rules engine leads to higher
efficiency in claims settlement. The Software-as-a-Service
(SaaS)-based approach allows for a more flexible delivery
mechanism that is expected to help Athenahealth win deals. The
company has traditionally enjoyed high customer satisfaction
rates, which facilitates a larger number of referrals.
Athenahealth's unique business model makes it a strong provider
of RCM services (athenaCollector) designed for small physician
practices. Its EHR product (athenaClinical) is a key player in
We believe that sales of athenaClinical are likely to remain
robust. In addition, the company will harness its newer products,
namely athenaCommunicator and athenaCoordinator.
The company should benefit from its extensive athenaCollector
client base, as only a minority of its subscriber base also
utilizes athenaClinical. Cross selling represents a real growth
opportunity in the near term. In this regard, Athenahealth has
made rapid strides in capturing the EHR business of physician
practices. However, this segment is shrinking, as hospitals
increasingly absorb physician's medical practices.
Athenahealth is geared to enter the enterprise segment through
its strategic alliance with
) and the acquisition of Proxsys, both completed in 2011. The
company has recently signed on, and executed several
enterprise-sized deals, which provide it with a credible and
referenceable client base.
Though the federal stimulus will gradually wind down, the
replacement market has been growing. Competition is fierce and
larger competitors may benefit from the incumbency factor.
Industry stalwarts such as
) offer long-standing seamless products integrating inpatient and
Allscripts Healthcare Solutions
) are two other well-known competitors in a crowded field.
We have a long-term Neutral recommendation on Athenahealth. The
stock carries a Zacks #3 Rank, which translates into a short-term