Shares of athenahealth Inc. ATHN plunged 7.39% ($9.07) to close at $113.59 on May 1, after the company reported loss of a penny (including stock based compensation) in the first quarter 2015. However, the first-quarter loss figure was much narrower than the Zacks Consensus Estimate of a loss of 10 cents a share and the year-ago quarter’s loss of 8 cents.
Quarter Details
Revenues surged 26.6% year over year to $206.4 million, slightly ahead of the Zacks Consensus Estimate of $205 million. The upside was driven by healthy growth across athenahealth-branded services, which were up 30% year over year to $192.1 million.
Epocrates-branded services revenues inched up 2% to $10.8 million. However, third-party tenant and other non-core revenues stood at $3.5 million, reflecting a decrease of 17% on a year-over-year basis.
Segment-wise, revenues from Business Services soared 28% year over year to $197.8 million while Implementation and Other revenues grew 1.6% to stand at $8.7 million.
During the quarter, athenahealth added 1,639 physicians to athenaCollector, 985 physicians to athenaClinicals, and 1,415 physicians to athenaCommunicator. However, the figures reflect a decline from 1,805 physicians, 1,133 physicians and 2,514 physicians added in the year-ago quarter, respectively.
Adjusted gross margin (including stock-based compensation) expanded 270 basis points (bps) to 60.9% in the quarter. Also, adjusted EBITDA margin improved 340 bps to 17.3%.
Total operating expenses (including stock based compensation) surged 27% on a year-over-year basis to $212.1 million in the quarter. Direct operating, selling & marketing (S&M), research & development (R&D), general & administrative (G&A) and depreciation & amortization increased 17.2%, 23.5%, 56.6%, 23.4% and 42.8%, respectively.
Owing to a steep increase in expenses, athenahealth reported adjusted operating loss (including stock based compensation) of $0.6 million.
As of Mar 31, 2015, athenahealth had cash and cash equivalents of $32.6 million, down from $73.8 million as of Dec 31, 2014.
Guidance
For full-year 2015, athenahealth projects total revenues in the range of $905 million –$925 million, up 28.1% at the mid-point. Adjusted earnings are forecasted in the $1.10–$1.20 per share range.
For 2015, management forecasts adjusted gross margin in the range of 62.5%–63.5%, while operating income is expected in the band of $75–$85 million.
Our Take
We believe that athenahealth’s strong product portfolio, expanding physician base and unique business model will continue to drive the top line. The company’s partnerships with the likes of Beth Israel Deaconess Medical Center (BIDMC) will improve its market penetration going forward.
The company was recently selected by Trinity Health to drive better clinical integration and people-centered care in the latter’s multi-state ambulatory network. The contract will help the company consolidate its position in the in-patient market. CareWell Urgent Care also selected athenahealth’s suite of cloud-based services, athenaOne, for integration into its growing network of urgent care practices.
In this regard, the acquisitions of RazorInsights and webOMR lend significant competitive edge to athenahealth, in our view.
Zacks Rank
Currently, athenahealth carries a Zacks Rank #1 (Strong Buy).
Other favorably-ranked stocks include Medidata Solutions MDSO, Adeptus Health ADPT and Merit Medical MMSI. All the three stocks carry the same Zacks Rank as athenahealth.
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