Athena Health Dives on Accounting Issues

WATERTOWN, MA. (TheStreet) -- A few weeks ago, health care information company AthenaHealth(ATHN) announced what seemed like a minor account hiccup.

On Thursday night, another accounting hiccup for AthenaHealth surfaced, and the health care information company announced that it will be postponing its fourth-quarter earnings.

Investors now fear that the seemingly isolated accounting events, one right on top of the other, could snowball.

AthenaHealth was down by double digits after the market close on Thursday, and by 14% within minutes of the open on Friday morning and had already doubled its average daily volume of shares traded, as panicky investors sold and short sellers covered.

AthenaHealth investors have good reason to be nervous, also. The former CFO and one of the founders of the company, Carl Byers, resigned at the end of 2009 and moved to Chile.

Whenever there is a change in CFO -- Timothy Adams replaced Byers at the beginning of the year -- there is always the opportunity for a new CFO to come in and review all the accounting procedures and interpretations and decide that revisions are required in accounting practices. "If the old CFO were still here, we probably wouldn't even know about these issues," said one health-care analyst who did not want to speculate on the AthenaHealth issues.

The first accounting issue was related to the way in which AthenaHealth reports net income on a non-GAAP basis. Brean Murray Carret & Co. analyst Bret Jones had estimated that potential AthenaHealth earnings restatement to equal 17% of 2009 earnings and 10% of 2010 estimated earnings.

The accounting issue that has led AthenaHealth to postpone its earnings for at least two weeks is related to what AthenaHealth calls implementation revenue -- revenue derived during the implementation period of clients taking on new services.