Athenahealth Suffers Loss, Miss Ests

Zacks

Athenahealth Inc. (ATHN) reported second-quarter 2013 adjusted (excluding one-time items other than stock-based compensation expense) loss per share of 21 cents, a massive disappointment compared with the Zacks Consensus Estimate of earnings of 8 cents per share. Moreover, the result was worse than the year-ago earnings per share of 13 cents.

Reported net loss in the quarter was $12.4 million (or 34 cents) compared with net income of $4.2 million (or 12 cents per share).

Although revenues climbed 41% year over year to $146.3 million in the quarter, it missed the Zacks Consensus Estimate of $148 million. Growth was led by expanded clientele for the company’s offerings and benefits from Epocrates takeover.

Quarterly Numbers

On a segment-wise basis, revenues from Business Services surged 23.2% year over year to $123.4 million (including $14.6 million from Epocrates) while Implementation and Other revenues soared 146.2% to $8.4 million.

Utilization of athenaCollector by medical providers and physicians grew 23.9% and 24.2%, respectively, year-over-year in the second quarter. Furthermore, the use of athenaClinicals by medical providers and physicians jumped 61.4% and 63.5%, respectively, year-over-year. The utilization of athenaCommunicator soared 117.1% and 119.3% for medical providers and physicians, respectively, from the year-ago quarter.

Direct operating expenses increased 44.8% year over year to $59.4 million in the quarter. Operating expenses surged on the back of higher selling and marketing expenditure (up 49.8% to $41 million), elevated research and development expenses (up 65.6% to $14.3 million) and greater general and administrative expenditure (up 76.7% to $24.7 million). Accordingly, adjusted operating margin contracted a whopping 737 basis points (bps) to 4.7% in the quarter.

Athenahealth exited the second quarter with cash and cash equivalents of $33.6 million, lower than almost $155 million at the end of 2012.

Guidance

Following the second quarter, Athenahealth revised its expectations for 2013. Total sales are expected to be in the midpoint of the earlier guidance range of $580 million to $615 million. The current Zacks Consensus Estimate of $597 million roughly tallies with the company’s expectations.

Our Take

In the second quarter, Athenahealth missed the Zacks Consensus Estimate on both counts. Margin downfall was another downside. However, the company witnessed robust utilization trends. We believe that cross-selling opportunities present a significant growth driver. Athenahealth should also gain from the Epocrates buyout.

Despite Athenahealth’s strong presence and unique business model in the health care information technology (:HCIT) industry, we remain cautious owing to the crowded field with larger players like Cerner Corporation (CERN).  

Athenahealth carries a Zacks Rank #3 (Hold). While we remain on the sidelines for the company, other players like Cerner and Medidata Solutions Inc. (MDSO) carrying a Zacks Rank #2 (Buy) warrant a look. Zacks Rank #2 medical devices stock like Edwards Lifesciences Corp. (EW) is also worth considering.
 

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