athenahealth Inc. (ATHN) reported adjusted earnings of $16.5 million or 43 cents per share (excluding amortization and integration and transaction costs) in the fourth quarter of 2013, reflecting a more than twofold increase from $6.6 million or 18 cents per share (excluding amortization of intangible assets) in the comparable quarter of 2012. With this, earnings also trounced the Zacks Consensus Estimate of 28 cents per share.
Revenues in the quarter surged 47.5% to $171.6 million and exceeded the Zacks Consensus Estimate of $169 million. Excluding the Epocrates and other revenues (consisting of third-party tenant revenues) totaling $22.6 million, core athenahealth revenues rose 28% to $149.0 million in the quarter.
On a segment-wise basis, revenues from Business Services rose 44.4% year over year to $162.5 million (including $18.9 million from Epocrates) while Implementation and Other revenues more than doubled to $9.0 million from $3.7 million in the fourth quarter of 2012.
Adjusted gross profits increased 54.4% to $111.5 million while adjusted gross margin rose 290 basis points (bps) to 65.0% from 62.1% in the 2012-quarter. Adjusted operating earnings surged 95.3% to $24.8 million while adjusted operating margin increased 360 bps to 14.5% from 10.9% in the prior-year quarter.
Full Year Results
In 2013, athenahealth posted a 16.1% fall in adjusted earnings per share to 47 cents (excluding amortization, integration and transaction costs, and gain on early termination of lease) from 56 cents (excluding amortization of intangible assets) in 2012. Nevertheless, earnings per share beat the Zacks Consensus Estimate of 33 cents for the year. Net earnings declined 12.7% to $18.1 million from $20.7 million a year ago.
Revenues in the year went up 40.9% to $595.0 million, exceeding the Zacks Consensus Estimate of $592 million. Revenues were also in line with the company’s own guided range of $580 to $615 million. athenahealth expanded its physician network by 28%, achieved its target of 30% bookings growth during the year.
Adjusted gross profits in the year rose 41.8% to $366.9 million while adjusted gross margin increased 40 bps to 61.7% from 61.3% in 2012. Adjusted operating earnings ebbed 20.3% to $30.3 million while adjusted operating margin dipped 390 bps to 5.1% from 9.0% in the prior-year due to higher operating expenses in the year.
Financial Position
athenahealth had cash and cash equivalents of $65.0 million as of Dec 31, 2013, significantly down from $155.0 million as of Dec 31, 2012. Total debt stood at $188.75 million at the end of last year compared with no debt at the end of 2012.
In 2013, cash flow from operating activities rose 32.9% to $93.3 million from $70.2 million in 2012. Capital expenditure surged 61.2% to $38.3 million compared with net capital expenditure of $23.7 million in 2012.
Our Take
We are encouraged by athenahealth’s fourth quarter results due to the stupendous rise in earnings and revenues that beat the Zacks Consensus Estimates. We believe that the company will benefit from cross-selling opportunities, Epocrates buyout and the successful implementation of the Meaningful Use Stage 2 (MU2) criteria across its nationwide, cloud-based network.
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).
Currently, athenahealth carries a Zacks Rank #4 (Sell). The Zacks Consensus Estimates for 2014 revenues and earnings per share stand at $748 million and 32 cents.
Some better-ranked stocks in the medical information systems industry at this moment include Computer Programs & Systems Inc. (CPSI) and Omnicell, Inc. (OMCL). While Computer Programs & Systems carries a Zacks Rank #1 (Strong Buy), Omnicell has a Zacks Rank #2 (Buy).
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