Leading vendor of cloud-based services for physician practices
) reported second quarter 2012 adjusted (excluding one-time items
other than stock-based compensation expense) earnings per share of
12 cents. It missed the Zacks Consensus Estimate of 16 cents per
share as well as the year-ago earnings of 14 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
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
Adjusted gross margin declined to 62.6% in the quarter from
64.4% a year ago whereas adjusted EBITDA improved 18% to $20.6
million (19.9% of total revenues). Operating margin slipped to 6.5%
from 12.1% in the prior year quarter.
Athenahealth ended the second quarter with cash and cash
equivalents and short-term investments of $155.4 million, up 48.8%
year over year.
For 2012, Athenahealth expects revenues to grow in the range of
31% to 33% to a band of $425 million and $430 million. The company
forecasts adjusted earnings in the range of 90 cents to $1.00.
Adjusted gross margin for 2012 is expected to be in the range of
62% to 63% while adjusted operating income is estimated in the
range of $59 million to $65 million.
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
ambulatory settings. We believe that sales of athenaClinical 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 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 currently retains a Zacks #4 Rank, which translates into a
short-term Sell rating.
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