athenahealth Inc. (ATHN) posted adjusted earnings of $3.7 million or 9 cents per share in the second quarter of 2014 in stark contrast to a loss of $9.3 million or 25 cents per share in the same quarter of 2013. Earnings per share in the quarter surpassed the Zacks Consensus Estimate by 7 cents.
However, shares of the company dipped 2.5% to $124.60 following the earnings announcement. The fall can be attributable to the company’s escalating costs (24.6%) in the reported quarter and lower ROE (6.0%) compared to its peer group (9.7%). The stock is also highly overvalued compared to the industry average.
On a reported basis, athenahealth posted a narrower loss of $2.2 million, or 6 cents per share, in the quarter compared with $12.4 million, or 34 cents per share, in the second quarter of 2014.
Revenues
Revenues in the quarter rose 27.1% to $185.9 million and edged past the Zacks Consensus Estimate of $182 million. athenahealth added 2,500 healthcare providers to its network, which implies 26% a rise to more than 55,000 providers in athenaNet.
Revenues from athenahealth-branded services rose 32% to $170.3 million in the quarter. However, revenues from Epocrates-branded services slid 23% to $11.3 million. Other revenues went up 95% to $4.3 million.
On a segment-wise basis, revenues from Business Services rose 27.6% year over year to $175.9 million while Implementation and Other revenues grew 19.0% to $10.0 million in the second quarter of 2014.
Margins
Adjusted gross profits escalated 27.5% to $113.9 million while adjusted gross margin rose 20 basis points (bps) to 61.2% from 61.0% in the 2013-quarter. Adjusted operating loss increased more than eight fold to $7.4 million or 4.0% of sales in the quarter from $874 thousand or 0.6% of sales in the prior-year quarter.
Financial Position
athenahealth had cash and cash equivalents of $56.2 million as of Jun 30, 2014, down 13.5% from $65.0 million as of Dec 31, 2013. Long-term debt stood at $181.25 million as of Jun 30, 2014, down 4.0% compared with $188.75 million as of Dec 31, 2013. With this, long term debt-to-capitalization ratio declined 280 bps to 29.7% from 32.5% as of Dec 31, 2013.
In the first half of 2014, cash flow from operating activities increased more than threefold to $63.8 million from $19.8 million in the same period of 2013, due to improved earnings and higher depreciation and amortization. Capital expenditure surged 74.6% to $29.0 million from $16.6 million in the first half of 2013.
Guidance
For the full year 2014, athenahealth projected revenues of $725 to $755 million. The current Zacks Consensus Estimate of $742 million lies within the company’s projected band.
For the full year, athenahealth also provided estimates for adjusted gross margin of 62.5–63.5%, adjusted operating income of $70 to $80 million and adjusted net earnings per share of 98 cents to $1.10.
Zacks Rank
Currently, athenahealth carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the medical products industry at this moment include OraSure Technologies, Inc. (OSUR), Wright Medical Group Inc. (WMGI), and St. Jude Medical Inc. (STJ). Both OraSure Technologies and Wright Medical Group sport a Zacks Rank #1 (Strong Buy), while St. Jude Medical retain a Zacks Rank #2 (Buy).
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