We maintain our Neutral recommendation on
). Its third-quarter 2012 earnings per share of 18 cents just
beat the Zacks Consensus Estimate. 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
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 athenaClinical 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
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.
The stock carries a Zacks #4 Rank, which translates into a
short-term Sell rating.
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