Leading vendor of cloud-based services for physician practices, Athenahealth’s (ATHN) second-quarter fiscal 2011 adjusted (excluding one-time items other than stock-based compensation expense) earnings of 14 cents per share beat the Zacks Consensus Estimate of 11 cents. Net income (as reported) for the quarter rose sharply to $5.2 million (or 14 cents per share) from a profit of roughly $1.3 million (or 4 cents per share) a year ago, riding on higher revenues.
The stock climbed 9.14% in after-hours trading, on July 21, to $53.02, reflecting favorable investor perception following improved guidance for 2011 and the acquisition of Proxsys.
Revenues
Sales for the reported quarter jumped 33% year over year to $77.9 million, surpassing the Zacks Consensus Estimate of $75 million. The company posted collections of $1.8 billion, up 28.6%.
As for the two segments, revenues from Business Services grew 33.6% to $75.3 million while Implementation and Other revenue increased 17.8% to $2.5 million.
Revenues were bolstered by sustained adoption of the Watertown, Massachusetts-based company’s flagship revenue cycle management solution athenaCollector and electronic health record (“EHR”) service athenaClinicals by physicians.
Use of athenaCollector by medical providers and physicians rose 19% and 21.5% year over year, respectively, in the second quarter. Moreover, utilization of athenaClinicals by medical providers more than doubled year over year.
Margins
Adjusted gross margin for the quarter rose to 64.4% from 60.7% a year ago while adjusted EBITDA margin climbed to 22.5% from 16.9%. Adjusted operating margin jumped to 17.7% from 12.4% a year ago.
Balance Sheet & Cash Flow
Athenahealth ended the quarter with cash, cash equivalents and short-term investments of $104.4 million, up 16.8% year over year. The company extinguished outstanding debt obligations during the quarter.
Acquisition of Proxsys
Besides the earnings release, Athenahealth reported that it has agreed to take over Proxsys, a well regarded vendor of cloud-based care coordination services among physicians and hospitals. Proxsys has teamed up with several dozen hospitals to provide simplified admitting services to health care facilities and their patients. Athenahealth will incur a cash payment of $28 million with possible milestone based payments of up to $8 million.
Athenahealth is expected to intertwine Proxsys into athenanet, its centralized cloud-oriented service platform. With this acquisition, the company will expedite development of its nascent care coordination product, also known as athenaCoordinator.
Outlook
Athenahealth revised its revenues forecast for fiscal 2011 to a higher range of $315 million to $325 million (earlier $300 million to $315 million). The company also raised the adjusted gross margin to a band of 62.5% to 63.5% (earlier 62% and 63%) and adjusted EBITDA to a range $59 million to $67 million (earlier $58 million to $65 million). The forecast for adjusted EPS was lifted to a band of 70 cents to 83 cents from the earlier projection of 68 cents to 78 cents.
Despite improved growth prospects, Athenahealth faces stiff competition across all of its operating platforms from established Health IT players such as Cerner (CERN), Allscripts-Misys (MDRX) and Quality Systems (QSII). Nevertheless, the company remains optimistic about the growth prospects in each of its end markets due to the federal stimulus program, which promotes EHR adoption in ambulatory and hospital settings.
Athenahealth’s Software as a service (SaaS)-based approach allows for a lower cost and more flexible delivery mechanism that is expected to help Athenahealth win deals. We believe that the company’s focused marketing approach is paying dividends, in the form of a large proportion of double barrel and triple barrel deals; or cross-selling in which more than one solution is sold to a client.
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