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Athenahealth, Inc. Reports Fourth Quarter And Full Year 2012 Results

For the year ended December 31, 2012, Non-GAAP Adjusted Gross Margin was 62.6%, down from 63.8% for full year 2011. Non-GAAP Adjusted EBITDA grew to $90.9 million, or 21.5% of total revenue from Non-GAAP Adjusted EBITDA for 2011 of $70.6 million, or 21.8% of total revenue. For full year 2012, GAAP net income was $18.7 million, or $0.50 per diluted share. Non-GAAP Adjusted Net Income for the year was $37.2 million, or $1.00 per diluted share. See "Use of Non-GAAP Financial Measures" below.

Key metrics and milestones in the fourth quarter and full year 2012 included the following:

  • $2.5 billion in collections posted to client accounts in the fourth quarter of 2012, compared to $2.0 billion in the same quarter of 2011
  • $9.2 billion in collections posted to client accounts in all of 2012, compared to $7.3 billion in all of 2011
  • 36.4 average client Days in Accounts Receivable (DAR) in the fourth quarter of 2012, compared to 38.9 average client DAR in the same quarter of 2011
  • 39,752 active medical providers using athenaCollector ® at December 31, 2012, 28,011 of whom were physicians, compared to 32,740 providers and 23,210 physicians at December 31, 2011
  • 10,926 active medical providers using athenaClinicals ® at December 31, 2012, 7,949 of whom were physicians, compared to 6,525 providers and 4,662 physicians at December 31, 2011
  • 14,065 active medical providers using athenaCommunicator ® at December 31, 2012, 10,153 of whom were physicians, compared to 5,830 providers and 4,098 physicians at December 31, 2011

As of December 31, 2012, the Company had cash, cash equivalents, and available-for-sale investments of $193.1 million. The Company does not have any outstanding debt obligations.

Use of Non-GAAP Financial Measures

In the Company’s earnings releases, conference calls, slide presentations, and webcasts, the Company may use or discuss non-GAAP financial measures, as defined by SEC Regulation G. The GAAP financial measure most directly comparable to each non-GAAP financial measure used or discussed, and a reconciliation of the differences between each non-GAAP financial measure and the comparable GAAP financial measure, are included in this press release after the consolidated financial statements. The Company’s earnings press releases containing such non-GAAP reconciliations can be found on the Investors section of the Company’s web site at http://www.athenahealth.com.

Conference Call Information

To participate in the Company’s live conference call and webcast, please dial 800-447-0521 (or 847-413-3238 for international calls) using conference code No. 34078406, or visit the Investors section of the Company’s web site at www.athenahealth.com. A replay will be available for one week following the conference call at 888-843-7419 (and 630-652-3042 for international calls) using conference code No. 34078406. A webcast replay will also be archived on the Company’s website.

About athenahealth

athenahealth is a leading provider of cloud-based Best in KLAS electronic health record ( EHR), practice management, care coordination services to medical groups and health systems. athenahealth's mission is to be the most trusted service to medical care givers, helping them do well, doing the right thing. For more information, please visit http://www.athenahealth.com/ or call (888) 652-8200.

Forward-Looking Statements

This press release contains forward-looking statements, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including statements reflecting management’s expectations for future financial and operational performance and operating expenditures, expected growth, and business outlook; statements regarding the benefits of the Company’s service offerings; statements regarding changes in the health care industry, including an increased emphasis on coordinated care and health information exchange, and the Company’s positioning in regard to those changes; and statements found under the Company’s “Reconciliation of Non-GAAP Financial Measures to Comparable GAAP Measures” section of this release. The forward-looking statements in this release do not constitute guarantees of future performance. These statements are neither promises nor guarantees, and are subject to a variety of risks and uncertainties, many of which are beyond the Company’s control, which could cause actual results to differ materially from those contemplated in these forward-looking statements. In particular, the risks and uncertainties include, among other things: the Company’s fluctuating operating results; the Company’s variable sales and implementation cycles, which may result in fluctuations in its quarterly results; risks associated with the acquisition and integration of companies and new technologies to achieve expected synergies; risks associated with its expectations regarding its ability to maintain profitability; the impact of increased sales and marketing expenditures, including whether increased expansion in revenues is attained and whether impact on margins and profitability is longer term than expected; changes in tax rates or exposure to additional tax liabilities; the highly competitive industry in which the Company operates and the relative immaturity of the market for its service offerings; and the evolving and complex governmental and regulatory compliance environment in which the Company and its clients operate. Existing and prospective investors are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company undertakes no obligation to update or revise the information contained in this press release, whether as a result of new information, future events or circumstances, or otherwise. For additional disclosure regarding these and other risks faced by the Company, please see the disclosures contained in its public filings with the Securities and Exchange Commission, available on the Investors section of the Company’s website at http://www.athenahealth.com and on the SEC’s website at http://www.sec.gov.

 

athenahealth, Inc.

CONSOLIDATED BALANCE SHEETS

(Unaudited, in thousands, except per share amounts)

   
December 31,2012 December 31,2011
Assets
Current assets:
Cash and cash equivalents $ 154,988 $ 57,781
Short-term investments 38,092 62,084
Current portion of restricted cash 1,357
Accounts receivable - net 61,916 49,038
Deferred tax assets 6,907 5,245
Prepaid expenses and other current assets 10,924   8,988  
Total current assets 274,184 183,136
 
Property and equipment - net 54,035 52,275
Restricted cash 5,007
Capitalized software costs - net 16,050 6,974
Purchased intangibles - net 21,561 20,052
Goodwill 48,090 47,307
Deferred tax assets 11,759 12,532
Investments and other assets 2,773   21,503  
Total assets $ 428,452   $ 348,786  
 
Liabilities & Stockholders’ Equity
Current liabilities:
Accounts payable $ 1,733 $ 6,318
Accrued compensation 36,393 28,176
Accrued expenses 19,683 17,774
Current portion of deferred revenue 8,209 6,345
Current portion of deferred rent 799   960  
Total current liabilities 66,817 59,573
Deferred rent, net of current portion 2,854 2,932
Deferred revenue, net of current portion 45,515 44,281
Other long-term liabilities 1,618   5,529  
Total liabilities 116,804 112,315
 
Stockholders’ equity:
Preferred stock, $0.01 par value: 5,000 shares authorized; no shares issued and outstanding at December 31, 2012, and December 31, 2011, respectively
Common stock, $0.01 par value: 125,000 shares authorized; 37,572 shares issued and 36,294 shares outstanding at December 31, 2012; 36,678 shares issued and 35,400 shares outstanding at December 31, 2011 376 367
Additional paid-in capital 303,547 247,131
Treasury stock, at cost, 1,278 shares (1,200 ) (1,200 )
Accumulated other comprehensive loss (81 ) (101 )
Retained earnings (accumulated deficit) 9,006   (9,726 )
Total stockholders’ equity 311,648   236,471  
Total liabilities and stockholders’ equity $ 428,452   $ 348,786  
 
 

athenahealth, Inc.

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited, in thousands, except per share amounts)

   

Three Months EndedDecember 31,

Twelve Months EndedDecember 31,

2012   2011 2012   2011
Revenue:
Business services $ 112,581 $ 89,293 $ 408,496 $ 312,768
Implementation and other 3,723   3,219   13,775   11,299  
Total revenue 116,304   92,512   422,271   324,067  
Expense:
Direct operating 45,208 34,810 166,886 122,795
Selling and marketing 27,580 23,235 104,300 79,775
Research and development 9,263 6,957 33,792 23,343
General and administrative 14,952 13,405 57,025 48,711
Depreciation and amortization 7,677   4,826   25,641   16,710  
Total expense 104,680   83,233   387,644   291,334  
Operating income 11,624 9,279 34,627 32,733
Other income (expense) 17   49   251   147  
Income before income tax provision 11,641 9,328 34,878 32,880
Income tax provision (5,701 ) (3,999 ) (16,146 ) (13,834 )
Net income $ 5,940   $ 5,329   $ 18,732   $ 19,046  
Net income per share - Basic $ 0.16 $ 0.15 $ 0.52 $ 0.54
Net income per share - Diluted $ 0.16 $ 0.15 $ 0.50 $ 0.53
Weighted average shares used in computing net income per share:
Basic 36,264 35,392 35,956 35,046
Diluted 37,420 36,492 37,133 36,050
 
 

athenahealth, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in thousands)

 
Year Ended December 31,
2012   2011
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 18,732 $ 19,046
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 29,144 19,030
Amortization of premium on investments 1,270 1,579
Provision for uncollectible accounts 153 1,122
Excess tax benefit from stock-based awards (14,179 ) (14,208 )
Deferred income tax (890 ) (2,962 )
Change in fair value of contingent considerations (5,118 ) 40
Stock-based compensation expense 27,236 18,901
Other reconciling adjustments (178 ) 73
Changes in operating assets and liabilities:
Accounts receivable (12,764 ) (12,130 )
Prepaid expenses and other current assets 12,096 11,787
Other long-term assets 111 489
Accounts payable 13 688
Accrued expenses 3,898 2,832
Accrued compensation 7,959 8,055
Deferred revenue 2,969 9,987
Deferred rent (239 ) (3,565 )
Net cash provided by operating activities 70,213   60,764  
CASH FLOWS FROM INVESTING ACTIVITIES:
Capitalized software development costs (15,657 ) (7,779 )
Purchases of property and equipment (23,904 ) (16,696 )
Proceeds from sales and disposals of property and equipment 172
Proceeds from sales and maturities of investments 160,340 168,083
Purchases of short-term and long-term investments (118,919 ) (165,657 )
Payments on acquisition (5,798 ) (34,882 )
Decrease in restricted cash 3,650   3,684  
Net cash used in investing activities (116 ) (53,247 )
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock under stock plans and warrants 18,699 14,097
Taxes paid related to net share settlement of restricted stock awards (4,248 )
Excess tax benefit from stock-based awards 14,179 14,208
Payment of contingent consideration accrued at acquisition date (1,550 ) (3,355 )
Financing fee for line of credit (741 )
Payment to terminate interest rate derivative contract (563 )
Payments on long-term debt and capital lease obligations   (9,216 )
Net cash provided by financing activities 27,080   14,430  
Effects of exchange rate changes on cash and cash equivalents 30   (110 )
Net increase in cash and cash equivalents 97,207 21,837
Cash and cash equivalents at beginning of period 57,781   35,944  
Cash and cash equivalents at end of period $ 154,988   $ 57,781  
Non-cash transactions
Property, equipment and purchased software recorded in accounts payable and accrued expenses $ 4,217   $ 8,066  
Taxes to be paid related to net share settlement of restricted stock awards in accrued exp. $ 258   $  
Tax benefit recorded in prepaid expenses and other current assets $ 14,150   $ 13,803  
Cash received for interest $ 1,960   $ 1,900  
Cash paid for taxes $ 3,932   $ 2,708  
 
   

athenahealth, Inc.

STOCK-BASED COMPENSATION

(Unaudited, in thousands)

 

Set forth below is a breakout of stock-based compensation impacting the Consolidated Statements of Income for the three and twelve months ended December 31, 2012 and 2011:

 

Three Months EndedDecember 31,

Twelve Months EndedDecember 31,

2012   2011 2012   2011
Stock-based compensation charged to Consolidated Statements of Income:
Direct operating $ 1,547 $ 948 $ 5,619 $ 3,173
Selling and marketing 2,312 1,721 7,717 5,645
Research and development 306 815 3,213 2,311
General and administrative 2,553   2,385   10,687   7,772
Total stock-based compensation expense 6,718   5,869   27,236   18,901
Amortization of capitalized stock-based compensation related to software development (1) 257     257  
Total $ 6,975   $ 5,869   $ 27,493   $ 18,901
 
(1) In addition, for the three and twelve months ended December 31, 2012, $0.8 million of stock-based compensation was capitalized in the line item Capitalized Software Costs in the Consolidated Balance Sheet for which $0.3 million of amortization was included in the line item Depreciation and Amortization Expense in the Consolidated Statements of Income. The amount of stock-based compensation related to capitalized software development costs in prior periods was not significant.
 
   

athenahealth, Inc.

CASH, CASH EQUIVALENTS, AND AVAILABLE-FOR-SALE INVESTMENTS

(Unaudited, in thousands)

 

Set forth below is a breakout of total cash, cash equivalents, and available-for-sale investments as of December 31, 2012, and December 31, 2011:

 
December 31, 2012 December 31, 2011
 
Cash, cash equivalents $ 154,988 $ 57,781
Short-term investments 38,092 62,084
Long-term investments (1)   18,619
Total $ 193,080   $ 138,484
 
(1) The Company has purchased certain available-for-sale investments that had a maturity date longer than one-year, which it classifies in “Investments and other assets” on the consolidated balance sheet.
 
 

athenahealth, Inc.

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

TO COMPARABLE GAAP MEASURES

(Unaudited, in thousands, except per share amounts)

 
The following is a reconciliation of the non-GAAP financial measures used by the Company to describe the Company’s financial results determined in accordance with accounting principles generally accepted in the United States of America (GAAP). An explanation of these measures is also included below under the heading “Explanation of Non-GAAP Financial Measures.”
 
While management believes that these non-GAAP financial measures provide useful supplemental information to investors regarding the underlying performance of the Company’s business operations, investors are reminded to consider these non-GAAP measures in addition to, and not as a substitute for, financial performance measures prepared in accordance with GAAP. In addition, it should be noted that these non-GAAP financial measures may be different from non-GAAP measures used by other companies, and management may utilize other measures to illustrate performance in the future. Non-GAAP measures have limitations in that they do not reflect all of the amounts associated with the Company’s results of operations as determined in accordance with GAAP.
 
Please note that these figures may not sum exactly due to rounding.

Non-GAAP Adjusted Gross Margin

Set forth below is a presentation of the Company’s “Non-GAAP Adjusted Gross Profit” and “Non-GAAP Adjusted Gross Margin,” which represents Non-GAAP Adjusted Gross Profit as a percentage of total revenue.

   
(unaudited, in thousands) Three Months Ended Twelve Months Ended
December 31, December 31,
2012   2011 2012   2011
 
Total revenue $ 116,304 $ 92,512 $ 422,271 $ 324,067
Direct operating expense 45,208   34,810   166,886   122,795  
Total revenue less direct
operating expense 71,096 57,702 255,385 201,272
Add: Stock-based compensation
allocated to direct operating expense 1,547 948 5,619 3,173
Add: Amortization of purchased intangibles 1,100 761 3,359 2,230
       
Non-GAAP Adjusted Gross Profit $ 73,743   $ 59,411   $ 264,363   $ 206,675  
 
Non-GAAP Adjusted Gross Margin 63.4 % 64.2 % 62.6 % 63.8 %
 

Non-GAAP Adjusted EBITDA

Set forth below is a reconciliation of the Company’s “Non-GAAP Adjusted EBITDA” and “Non-GAAP Adjusted EBITDA Margin,” which represents Non-GAAP Adjusted EBITDA as a percentage of total revenue.

 

(unaudited, in thousands)   Three Months Ended   Twelve Months Ended
December 31, December 31,
2012   2011 2012  

2011

 
Total Revenue $ 116,304 $ 92,512 $ 422,271 $ 324,067
 
GAAP net income 5,940 5,329 18,732 19,046
Add: Provision for income taxes 5,701 3,999 16,146 13,834
Less: Total other income (17 ) (49 ) (251 ) (147 )
Add: Stock-based compensation expense 6,718 5,869 27,236 18,901
Add: Depreciation and amortization 7,677 4,826 25,641 16,710
Add: Amortization of purchased intangibles 1,100 761 3,359 2,230
       
Non-GAAP Adjusted EBITDA $ 27,119   $ 20,735   $ 90,863   $ 70,574  
 
Non-GAAP Adjusted EBITDA Margin 23.3 % 22.4 % 21.5 % 21.8 %
 

Non-GAAP Adjusted Operating Income

Set forth below is a reconciliation of the Company’s “Non-GAAP Adjusted Operating Income” and “Non-GAAP Adjusted Operating Income Margin,” which represents Non-GAAP Adjusted Operating Income as a percentage of total revenue.

   
(unaudited, in thousands) Three Months Ended Twelve Months Ended
December 31, December 31,
2012   2011 2012   2011
 
Total revenue $ 116,304 $ 92,512 $ 422,271 $ 324,067
 
GAAP net income 5,940 5,329 18,732 19,046
Add: Provision for income taxes 5,701 3,999 16,146 13,834
Less: Total other income (17 ) (49 ) (251 ) (147 )
Add: Stock-based compensation expense 6,718 5,869 27,236 18,901
Add: Amortization of capitalized stock-based compensation related to software development 257 257
Add: Amortization of purchased intangibles 1,100 761 3,359 2,230
       
Non-GAAP Adjusted Operating Income $ 19,699   $ 15,909   $ 65,479   $ 53,864  
 
Non-GAAP Adjusted Operating Income Margin 16.9 % 17.2 % 15.5 % 16.6 %
 

Non-GAAP Adjusted Net Income

Set forth below is a reconciliation of the Company’s “Non-GAAP Adjusted Net Income” and “Non-GAAP Adjusted Net Income per Diluted Share.”

 

(unaudited, in thousands)   Three Months Ended   Twelve Months Ended
December 31, December 31,
2012   2011 2012   2011
 
GAAP net income $ 5,940 $ 5,329 $ 18,732 $ 19,046
Add: Loss on interest rate derivative contract 73
Add: Stock-based compensation expense 6,718 5,869 27,236 18,901
Add: Amortization of capitalized stock-based compensation related to software development 257 257
Add: Amortization of purchased intangibles 1,100 761 3,359 2,230
       
Sub-total of tax deductible items 8,075 6,630 30,852 21,204
 
(Less): Tax impact of tax deductible items (1) (3,230 ) (2,652 ) (12,341 ) (8,482 )
       
Non-GAAP Adjusted Net Income $ 10,785   $ 9,307   $ 37,243   $ 31,768  
 
Weighted average shares - diluted 37,420 36,492 37,133 36,050
 
Non-GAAP Adjusted Net Income per Diluted Share $ 0.29 $ 0.26 $ 1.00 $ 0.88
 

(1) Tax impact calculated using a statutory tax rate of 40%.

 
(unaudited, in thousands) Three Months Ended Twelve Months Ended
December 31, December 31,
2012 2011 2012 2011
 
GAAP net income per share - diluted $ 0.16 $ 0.15 $ 0.50 $ 0.53
Add: Loss on interest rate derivative contract
Add: Stock-based compensation expense 0.18 0.16 0.73 0.52
Add: Amortization of capitalized stock-based compensation related to software development 0.01 0.01
Add: Amortization of purchased intangibles 0.03 0.02 0.09 0.06
       
Sub-total of tax deductible items 0.22 0.18 0.83 0.59
 
(Less): Tax impact of tax deductible items (1) (0.09 ) (0.07 ) (0.33 ) (0.24 )
       
Non-GAAP Adjusted Net Income per Diluted Share $ 0.29   $ 0.26   $ 1.00   $ 0.88  
 
Weighted average shares - diluted 37,420 36,492 37,133 36,050
 

(1) Tax impact calculated using a statutory tax rate of 40%.

 

Explanation of Non-GAAP Financial Measures

The Company reports its financial results in accordance with accounting principles generally accepted in the United States of America, or GAAP. However, management believes that, in order to properly understand the Company’s short-term and long-term financial and operational trends, investors may wish to consider the impact of certain non-cash or non-recurring items, when used as a supplement to financial performance measures in accordance with GAAP. These items result from facts and circumstances that vary in frequency and impact on continuing operations. Management also uses results of operations before such items to evaluate the operating performance of the Company and compare it against past periods, make operating decisions, and serve as a basis for strategic planning. These non-GAAP financial measures provide management with additional means to understand and evaluate the operating results and trends in the Company’s ongoing business by eliminating certain non-cash expenses and other items that management believes might otherwise make comparisons of the Company’s ongoing business with prior periods more difficult, obscure trends in ongoing operations, or reduce management’s ability to make useful forecasts. Management believes that these non-GAAP financial measures provide additional means of evaluating period-over-period operating performance. In addition, management understands that some investors and financial analysts find this information helpful in analyzing the Company’s financial and operational performance and comparing this performance to its peers and competitors.

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