athenahealth, Inc. Reports Fourth Quarter and Full Year 2012 Results

Feb 07, 2013

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Q4 2012 Financial Results

  • 26% Revenue Growth Over Fourth Quarter of 2011
  • GAAP Net Income of $5.9 Million, or $0.16 Per Diluted Share
  • Non-GAAP Adjusted Net Income of $10.8 Million, or $0.29 Per Diluted Share

Full Year 2012 Financial Results

  • 30% Revenue Growth Over Full Year 2011
  • GAAP Net Income of $18.7 Million, or $0.50 Per Diluted Share
  • Non-GAAP Adjusted Net Income of $37.2 Million, or $1.00 Per Diluted Share

WATERTOWN, Mass.--(BUSINESS WIRE)--Feb. 7, 2013-- athenahealth, Inc. (NASDAQ: ATHN) (the “Company,” “we,” or “athenahealth”), a leading provider of cloud-based electronic health record (EHR), practice management, and care coordination services to medical groups and health systems, today announced financial and operational results for the fourth quarter and full year 2012. The Company will conduct a conference call tomorrow, Friday, February 8, 2013, at 8:00 a.m. Eastern Time to discuss these results and management’s outlook for future financial and operational performance.

Total revenue for the three months ended December 31, 2012, was $116.3 million, compared to $92.5 million in the same period last year, an increase of 26%. Full year 2012 revenue was $422.3 million, compared to full year 2011 revenue of $324.1 million, an increase of 30%.

“2012 was a pivotal year for athenahealth. We delivered strong top and bottom line performance and made marked progress on our mission to be medical care givers' most trusted service,” said Jonathan Bush, the Company’s Chairman and Chief Executive Officer. “While information liquidity in health care is mostly an abstract concept, our effort to build a sustainable, market-based national health information backbone is slowly gaining traction. Our information services cover the life cycle of a claim, the chart, the patient relationship and the hospital admission, but they are still small. We have the right model and together with our nearly 40,000 forward-thinking providers who are tapped into our cloud-based network, we are slowly connecting the synapses of health care.”

For the three months ended December 31, 2012, Non-GAAP Adjusted Gross Margin was 63.4%, down from 64.2% in the same period last year, as the Company continues to invest in its newest service offering, athenaCoordinator®. Non-GAAP Adjusted EBITDA increased 31%, to $27.1 million, or 23.3% of total revenue, from Non-GAAP Adjusted EBITDA of $20.7 million, or 22.4% of total revenue, in the same period last year. For the three months ended December 31, 2012, GAAP net income was $5.9 million, or $0.16 per diluted share, compared to $5.3 million, or $0.15 per diluted share, in the same period last year. Non-GAAP Adjusted Net Income was $10.8 million, or $0.29 per diluted share, up from $9.3 million, or $0.26 per diluted share, in the same period last year. See “Use of Non-GAAP Financial Measures” below.

“The athenahealth team delivered another great year. We achieved our revenue growth goal of 30% for the 13th year in a row and continued our efforts to improve operational efficiencies across each of our service offerings,” said Tim Adams, the Company’s Chief Financial Officer. “Our investments in growth and innovation are a sign of our commitment to our 30% growth target and to our vision of becoming an information backbone that helps health care work as it should.”

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 Ended
December 31,

 

Twelve Months Ended
December 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 Ended
December 31,

 

Twelve Months Ended
December 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.

Management defines “Non-GAAP Adjusted Gross Profit” as total revenue, less direct operating expense, plus (1) stock-based compensation expense allocated to direct operating expense and (2) amortization of purchased intangibles, and “Non-GAAP Adjusted Gross Margin” as Non-GAAP Adjusted Gross Profit as a percentage of total revenue. Management considers these non-GAAP financial measures to be important indicators of the Company’s operational strength and performance of its business and a good measure of its historical operating trends. Moreover, management believes that these measures enable investors and financial analysts to closely monitor and understand changes in the Company’s ability to generate income from ongoing business operations.

Management defines “Non-GAAP Adjusted EBITDA” as the sum of GAAP net income before provision for income taxes, total other (income) expense, stock-based compensation expense, depreciation and amortization, and amortization of purchased intangibles and “Non-GAAP Adjusted EBITDA Margin” as Non-GAAP Adjusted EBITDA as a percentage of total revenue. Management defines “Non-GAAP Adjusted Operating Income” as the sum of GAAP net income before provision for income taxes, total other (income) expense, stock-based compensation expense, amortization of capitalized stock-based compensation related to software development, and amortization of purchased intangibles, and “Non-GAAP Adjusted Operating Income Margin” as Non-GAAP Adjusted Operating Income as a percentage of total revenue. Management defines “Non-GAAP Adjusted Net Income” as the sum of GAAP net income before loss on interest rate derivative contract, stock-based compensation expense, amortization of capitalized stock-based compensation related to software development, amortization of purchased intangibles, and any tax impact related to these items, and “Non-GAAP Adjusted Net Income per Diluted Share” as Non-GAAP Adjusted Net Income divided by weighted average diluted shares outstanding. Management considers all of these non-GAAP financial measures to be important indicators of the Company’s operational strength and performance of its business and a good measure of its historical operating trends, in particular the extent to which ongoing operations impact the Company’s overall financial performance.

Management excludes each of the items identified below from the applicable non-GAAP financial measure referenced above for the reasons set forth with respect to that excluded item:

  • Stock-based compensation expense and amortization of capitalized stock-based compensation related to software development — excluded because these are non-cash expenditures that management does not consider part of ongoing operating results when assessing the performance of the Company’s business, and also because the total amount of the expenditure is partially outside of the Company’s control because it is based on factors such as stock price, volatility, and interest rates, which may be unrelated to the Company’s performance during the period in which the expense is incurred.
  • Amortization of purchased intangibles — purchased intangibles are amortized over their estimated useful life and generally cannot be changed or influenced by management after the acquisition. Accordingly, this item is not considered by management in making operating decisions. Thus, including such charge does not accurately reflect the performance of the Company’s ongoing operations for the period in which such charge is incurred.
  • Gains and losses on interest rate derivative contract — excluded because, until they are realized, to the extent these gains or losses impact a period presented, management does not believe that they reflect the underlying performance of ongoing business operations for such period.

Source: athenahealth, Inc.

athenahealth (Investors)
Dana Quattrochi, 617-402-1329
investorrelations@athenahealth.com
or
athenahealth (Media)
Holly Spring, 617-402-1631
hspring@athenahealth.com