We maintain our Neutral rating on
). Its second-quarter 2012 adjusted earnings per share of 12 cents
missed the Zacks Consensus Estimate of 16 cents. Reported net
income in the quarter declined 19.9% year over year to $4.2 million
(or 11 cents per share).
Revenues in the quarter jumped 32.9% year over year to $103.5
million, falling short of the Zacks Consensus Estimate of $104
million. As for the two reporting segments, revenues from Business
Services increased 32.9% year over year to $100.1 million, while
Implementation and Other revenues improved 34.3% to $3.4
Utilization of athenaCollector by both medical providers and
physicians grew 20.1% year over year in the second quarter.
Furthermore, the use of athenaClinicals by medical providers and
physicians jumped 76.5% and 78.6% respectively, year over year. The
utilization of athenaCommunicator increased exponentially to 8,642
medical providers (of whom 6,306 were physicians) from 1,936
medical providers (of whom 1,198 were physicians) in the year-ago
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 helps
Athenahealth to win deals. The company has traditionally enjoyed
high customer satisfaction rates, which facilitates a larger number
Athenahealth's unique business model makes it a strong provider
of RCM services (athenaCollector) to small physician practices. Its
EHR product (athenaClinicals) is a key player in ambulatory
settings. We believe that sales of athenaClinicals are likely
to remain robust, given the opportunity for physicians to earn
incentive payments under the federal stimulus. In addition, the
company will harness its newer products, namely athenaCommunicator
The company should benefit from its extensive athenaCollector
client base, as only a minority of its subscriber base also
utilizes athenaClinicals. 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
those physician practices.
Athenahealth has geared itself for the enterprise segment
through its strategic alliance with
) and the acquisition of Proxsys, both in 2011. The company has
recently signed on, and executed several enterprise-sized deals,
which provide it with a credible and referable client base.
Though the federal stimulus will gradually wind down, the
replacement market is 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 currently have a Neutral recommendation on Athenahealth. The
stock currently retains a Zacks #3 Rank, which translates into a
short-term Hold recommendation.
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