athenahealth Falls Despite Q2 Beat and Higher Earnings - Analyst Blog

By Zacks Equity Research,

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athenahealth Inc. ( ATHN ) posted adjusted earnings of $3.7 million or 9 cents per share in the second quarter of 2014 in stark contrast to a loss of $9.3 million or 25 cents per share in the same quarter of 2013. Earnings per share in the quarter surpassed the Zacks Consensus Estimate by 7 cents.

However, shares of the company dipped 2.5% to $124.60 following the earnings announcement. The fall can be attributable to the company's escalating costs (24.6%) in the reported quarter and lower ROE (6.0%) compared to its peer group (9.7%). The stock is also highly overvalued compared to the industry average.

On a reported basis, athenahealth posted a narrower loss of $2.2 million, or 6 cents per share, in the quarter compared with $12.4 million, or 34 cents per share, in the second quarter of 2014.

Athenahealth, Inc - Earnings Surprise | FindTheBest


Revenues in the quarter rose 27.1% to $185.9 million and edged past the Zacks Consensus Estimate of $182 million. athenahealth added 2,500 healthcare providers to its network, which implies 26% a rise to more than 55,000 providers in athenaNet.

Revenues from athenahealth-branded services rose 32% to $170.3 million in the quarter. However, revenues from Epocrates-branded services slid 23% to $11.3 million. Other revenues went up 95% to $4.3 million.

On a segment-wise basis, revenues from Business Services rose 27.6% year over year to $175.9 million while Implementation and Other revenues grew 19.0% to $10.0 million in the second quarter of 2014.


Adjusted gross profits escalated 27.5% to $113.9 million while adjusted gross margin rose 20 basis points (bps) to 61.2% from 61.0% in the 2013-quarter. Adjusted operating loss increased more than eight fold to $7.4 million or 4.0% of sales in the quarter from $874 thousand or 0.6% of sales in the prior-year quarter.

Financial Position

athenahealth had cash and cash equivalents of $56.2 million as of Jun 30, 2014, down 13.5% from $65.0 million as of Dec 31, 2013. Long-term debt stood at $181.25 million as of Jun 30, 2014, down 4.0% compared with $188.75 million as of Dec 31, 2013. With this, long term debt-to-capitalization ratio declined 280 bps to 29.7% from 32.5% as of Dec 31, 2013.

In the first half of 2014, cash flow from operating activities increased more than threefold to $63.8 million from $19.8 million in the same period of 2013, due to improved earnings and higher depreciation and amortization. Capital expenditure surged 74.6% to $29.0 million from $16.6 million in the first half of 2013.


For the full year 2014, athenahealth projected revenues of $725 to $755 million. The current Zacks Consensus Estimate of $742 million lies within the company's projected band.

For the full year, athenahealth also provided estimates for adjusted gross margin of 62.5-63.5%, adjusted operating income of    $70 to $80 million and adjusted net earnings per share of 98 cents to $1.10.

Zacks Rank

Currently, athenahealth carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the medical products industry at this moment include OraSure Technologies, Inc. ( OSUR ), Wright Medical Group Inc. ( WMGI ), and St. Jude Medical Inc. ( STJ ). Both OraSure Technologies and Wright Medical Group sport a Zacks Rank #1 (Strong Buy), while St. Jude Medical retain a Zacks Rank #2 (Buy).

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Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Earnings , Stocks
Referenced Stocks: WMGI , STJ , ATHN , OSUR

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