athenahealth, Inc. Reports Third Quarter Fiscal Year 2010 Results

— 33% Revenue Growth Over Third Quarter of 2009 — GAAP Net Income of $3.8 Million, or $0.11 Per Diluted Share — Non-GAAP Adjusted Net Income of $6.4 Million, or $0.18 Per Diluted Share

WATERTOWN, Mass. (October 21, 2010) – athenahealth, Inc. (Nasdaq: ATHN), (the “Company”), a leading provider of web-based practice management, electronic health record (EHR), and patient communication services to medical groups, today announced financial and operational results for the third quarter of fiscal year 2010. The Company will conduct a conference call on Friday, October 22, 2010, at 8:00 a.m. Eastern Time to discuss these results and management’s outlook for future financial and operational performance. In addition, the Company has furnished prepared remarks in conjunction with this press release via a Current Report on Form 8-K. These prepared remarks, including supplemental charts containing non-financial metrics commonly reported with quarterly results, are available within the Investors section of the Company’s website at www.athenahealth.com.

Total revenue for the three months ended September

“athenahealth expanded its industry leadership position this quarter,” said Jonathan Bush, the Company’s Chairman, President and Chief Executive Officer. “Providing clients with new revenue opportunities, such as those available from our partnership with Humana, and most recently, delivering a Meaningful Use-certified EHR to all athenaClinicals clients instantaneously, demonstrates the power of our web-based service model and our commitment to clients’ success.”

For the three months ended September 30, 2010, Non-GAAP Adjusted Gross Margin was 62.8%, up from 58.9% in the same period last year. Non-GAAP Adjusted EBITDA was $14.6 million, or 23.0% of total revenue, up from Non-GAAP Adjusted EBITDA of $7.9 million, or 16.6% of total revenue in the same period last year. GAAP Net Income for the third quarter of 2010 was $3.8 million, or $0.11 per diluted share compared to GAAP Net Income of $1.2 million or $0.03 per diluted share in the same period last year. Non-GAAP Adjusted Net Income was $6.4 million, or $0.18 per diluted share, compared to $3.2 million or $0.09 per diluted share in the same period last year.

“We achieved strong revenue growth and expanded profitability during Q3 2010 while continuing to invest in sales and marketing,” said Tim Adams, the Company’s Chief Financial Officer and Treasurer. “In addition, we were pleased with the significant level of physician additions we achieved during the third quarter as we brought new clients onto the network and expanded relationships with existing clients.”

Adams added, “Looking ahead, we expect that revenue growth for the full year 2010 will be approximately 29% over full year 2009. In terms of Q4 2010, we expect that Non-GAAP Adjusted Gross Margin, Non-GAAP Adjusted EBITDA Margin and Non-GAAP Adjusted Operating Margins should be roughly in line with the margin levels we achieved in Q4 2009. Finally, we continue to expect that our GAAP sales and marketing expense will be approximately 21% of total revenue for the full year of 2010.”

Key metrics and milestones in the third quarter of 2010 included the following:

  • $1.5 billion in collections posted to client accounts, compared to $1.2 billion in the same quarter of 2009
  • 38.8 average client Days in Accounts Receivable (DAR), compared to 39.3 average client DAR in the same quarter of 2009
  • 18,573 active physicians using athenaCollector
  • 26,317 active medical providers using athenaCollector at September
  • 2,818 active medical providers using athenaClinicals
  • 946 active medical providers using athenaCommunicatorSM at September 30, 2010, 625 of which were physicians

As of September 30, 2010, the Company had cash, cash equivalents, and short-term investments of $97.6 million and short- and long-term debt and capital lease obligations of $10.1 million.

Use of Non-GAAP Financial Measures

In the Company’s earnings releases, conference calls, slide presentations, or 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 condensed 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 800-638-5495 (617-614-3946 for international calls) using conference code No. 49182074 or visit the Investors section of the Company’s web site: www.athenahealth.com. A replay will be available for one week following the conference call at 888-286-8010 (617-801-6888 for international calls) using conference code No. 95235326. A webcast replay will also be archived on the Company’s website.

About athenahealth

athenahealth, Inc. is a leading provider of web-based business services for medical groups. athenahealth’s service offerings are based on proprietary web-native practice management and electronic health record (EHR) software, a continuously updated payer knowledge-base, integrated back-office service operations, and automated and live patient communication services. For more information, please visit 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, including anticipated annual growth rates, profitability and business outlook, the benefits of the Company’s current service offerings, and statements found under the Company’s Reconciliation of Non-GAAP Financial 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 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, 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.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands, except per share amounts)
September December
30, 2010 31, 2009
Assets
Current assets:
Cash and cash equivalents $ 24,054 $ 30,526
Short-term investments 73,560 52,323
Accounts receivable – net 36,151 33,323
Deferred tax assets 3,945 5,544
Prepaid expenses and other current assets 6,635 4,663
Total current assets 144,345 126,379
Property and equipment – net 32,389 24,871
Restricted cash 8,885 9,216
Software development costs – net 2,954 2,324
Purchased intangibles – net 13,111 14,490
Goodwill 22,407 22,120
Deferred tax assets 14,217 10,284
Other assets 3,235 1,393
Total assets $ 241,543 $ 211,077
Liabilities & Stockholders’ Equity
Current liabilities:
Current portion of long-term debt and capital lease obligations $ 3,116 $ 3,437
Accounts payable 1,102 1,880
Accrued compensation 16,608 15,774
Accrued expenses 10,827 10,781
Current portion of deferred revenue 5,408 4,038
Interest rate derivative liability 766 291
Current portion of deferred rent 1,369 1,288
Total current liabilities 39,196 37,489
Deferred revenue, net of current portion 33,766 28,684
Other long-term liabilities 1,681 1,191
Deferred rent, net of current portion 6,403 7,444
Debt and capital lease obligations, net of current portion 6,943 8,951
Total liabilities 87,989 83,759
Stockholders’ equity:
Preferred stock, $0.01 par value: 5,000 shares authorized; no shares issued
and outstanding at September 30, 2010 and December 31, 2009, respectively
Common stock, $0.01 par value: 125,000 shares authorized; 35,519 shares
issued, and 34,241 shares outstanding at September 30, 2010; 35,166
shares issued and 33,888 shares outstanding at December 31, 2009. 355 352
Additional paid-in capital 190,588 169,715
Treasury stock, at cost, 1,278 shares (1,200 ) (1,200 )
Accumulated other comprehensive loss (114 ) (73 )
Accumulated deficit (36,075 ) (41,476 )
Total stockholders’ equity 153,554 127,318
Total liabilities and stockholders’ equity $ 241,543 $ 211,077
athenahealth, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except per share amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
2010 2009 2010 2009
(as restated) (as restated)
Revenue:
Business services $ 61,087 $ 45,609 $ 170,051 $ 129,933
Implementation and other 2,056 1,796 6,121 4,148
Total revenue 63,143 47,405 176,172 134,081
Expense:
Direct operating 24,543 19,942 72,163 57,900
Selling and marketing 13,233 8,963 37,986 24,850
Research and development 4,645 3,748 13,543 10,368
General and administrative 10,390 9,732 33,470 26,327
Depreciation and amortization 2,869 2,098 7,946 5,535
Total expense 55,680 44,483 165,108 124,980
Operating income 7,463 2,922 11,064 9,101
Other income (expense):
Interest income 75 216 219 938
Interest expense (102 ) (270 ) (437 ) (727 )
(Loss) gain on interest rate derivative contract (111 ) (125 ) (475 ) 375
Other income 33 96 96 211
Total other (expense) income (105 ) (83 ) (597 ) 797
Income before income taxes 7,358 2,839 10,467 9,898
Income tax provision (3,532 ) (1,673 ) (5,066 ) (4,950 )

Source: athenahealth