athenahealth, Inc. Reports Fourth Quarter and Full Year 2014 Results

Q4 2014 Financial Results

• 24% Revenue Growth Over Fourth Quarter of 2013
• Non-GAAP Adjusted Operating Income of $38.5 million
• GAAP Net Income of $8.7 million, or $0.22 Per Diluted Share
• Non-GAAP Adjusted Net Income of $22.5 million, or $0.58 Per Diluted Share

Full Year 2014 Financial Results

• 26% Revenue Growth Over Full Year 2013
• Non-GAAP Adjusted Operating Income of $87.3 million
• GAAP Net Loss of $3.1 million, or $0.08 Per Diluted Share
• Non-GAAP Adjusted Net Income of $49.5 million, or $1.31 Per Diluted Share

WATERTOWN, Mass., Feb. 5, 2015 (GLOBE NEWSWIRE) -- athenahealth, Inc. (Nasdaq:ATHN) ("athenahealth" or "we"), a leading provider of cloud-based services and mobile applications for medical groups and health systems, today announced financial and operational results for the fourth quarter and full year 2014. We will conduct a conference call tomorrow, Friday, February 6, 2015, at 8:00 a.m. Eastern Time to discuss these results and management's outlook for future financial and operational performance.

• Grew net new active physicians on athenaCollector® (2,317 physicians added), athenaClinicals® (1,353 physicians added), and athenaCommunicator® (2,480 physicians added) for the three months ended December 31, 2014, compared to athenaCollector (2,094 physicians added), athenaClinicals (987 physicians added), and athenaCommunicator (4,186 physicians added) in the same period last year.
   
• Grew net new active physicians on athenaCollector (9,565 physicians added), athenaClinicals (6,423 physicians added), and athenaCommunicator (10,647 physicians added) for the twelve months ended December 31, 2014, compared to athenaCollector (7,847 physicians added), athenaClinicals (4,439 physicians added), and athenaCommunicator (11,363 physicians added) in the same period last year.
   
• Total revenue for the three months ended December 31, 2014, was $213.2 million, compared to $171.6 million in the same period last year, an increase of 24%.
  
  
  • Revenue from athenahealth-branded services was $195.9 million, an increase of 31% over $149.0 million for the three months ended December 31, 2013.
     
  • Revenue from Epocrates-branded services was $12.8 million, a decrease of 32% from $18.9 million for the three months ended December 31, 2013.
     
  • Third-party tenant and other non-core revenue was $4.5 million, an increase of 22% over $3.7 million for the three months ended December 31, 2013.
     
• Total revenue for full year 2014 was $752.6 million, compared to full year 2013 revenue of $595.0 million, an increase of 26%.
  
  
  • Revenue from athenahealth-branded services was $690.0 million, an increase of 29% over $532.9 million for the twelve months ended December 31, 2013.
     
  • Revenue from Epocrates-branded services was $44.5 million, a decrease of 15% from $52.4 million for twelve months ended December 31, 2013.
     
  • Third-party tenant and other non-core revenue was $18.1 million, an increase of 87% over $9.7 million for the twelve months ended December 31, 2013.

"We believe in a connected health care experience for all, where everyone across the continuum is connected to information and outcomes. In 2014, we connected a record 12,137 providers to our network and we connected 699 clients to innovative technologies and services offered on our MDP Marketplace. With a growing tally of more than 161,000 active interfaces, our clients' ability to share information is increasingly unencumbered," said Jonathan Bush, athenahealth's chairman and chief executive officer. "We are making marked progress towards building the health care internet. Our recent acquisition of RazorInsights and partnership with Beth Israel Deaconess Medical Center furthers our efforts and advances our ability to improve care coordination within and around the inpatient environment."

• For the three months ended December 31, 2014, Non-GAAP Adjusted Gross Margin was 67.1%, up from 66.2% in the same period last year.
   
• For the three months ended December 31, 2014, Non-GAAP Adjusted Operating Income was $38.5 million, or 18.0% of total revenue, compared to Non-GAAP Adjusted Operating Income of $34.1 million, or 19.9% of total revenue, in the same period last year.
   
• For the three months ended December 31, 2014, GAAP Net Income was $8.7 million, or $0.22 per diluted share, compared to $13.1 million, or $0.34 per diluted share, in the same period last year.
   
• For the three months ended December 31, 2014, Non-GAAP Adjusted Net Income was $22.5 million, or $0.58 per diluted share, compared to $22.1 million, or $0.57 per diluted share, in the same period last year.
  
  
  • For 2014, we used a non-GAAP tax rate of 40% to normalize the tax impact to our Non-GAAP Adjusted Net Income per Diluted Share based on the fact that a relatively small change in pre-tax GAAP income (loss) could result in a volatile GAAP effective tax rate. If this approach had been used for the three months ended December 31, 2013, Non-GAAP Adjusted Net Income per Diluted Share would have been $0.51 instead of $0.57.
     
• For the year ended December 31, 2014, Non-GAAP Adjusted Gross Margin was 63.0%, compared to 63.0% for the year ended December 31, 2013.
   
• For the year ended December 31, 2014, Non-GAAP Adjusted Operating Income was $87.3 million, or 11.6% of total revenue, compared to Non-GAAP Adjusted Operating Income of $74.0 million, or 12.4% of total revenue, for the year ended December 31, 2013.
   
• For the year ended December 31, 2014, GAAP Net Loss was $3.1 million, or $0.08 per diluted share, compared to GAAP Net Income of $2.6 million, or $0.07 per diluted share, for the year ended December 31, 2013.
   
• For the year ended December 31, 2014, Non-GAAP Adjusted Net Income was $49.5 million, or $1.31 per diluted share, compared to $44.3 million, or $1.16 per diluted share, for the year ended December 31, 2013.
  
  
  • For 2014, we used a non-GAAP tax rate of 40% to normalize the tax impact to our Non-GAAP Adjusted Net Income per Diluted Share based on the fact that a relatively small change in pre-tax GAAP income (loss) could result in a volatile GAAP effective tax rate. If this approach had been used for the twelve months ended December 31, 2013, Non-GAAP Adjusted Net Income per Diluted Share would have been $1.10 instead of $1.16.

"In 2014, we grew our network to serve over 62,000 providers, increased our total automation rate to 51%, and made meaningful investments in both innovation and openness to further disrupt the status quo in health care," said Kristi Matus, athenahealth's chief financial & administrative officer. "athenahealth remains committed to delivering results-oriented solutions, not just for the clients we serve today, but for our growing addressable market and the care continuum at large."

We are updating our fiscal year 2015 guidance to incorporate the acquisition of RazorInsights and the purchase of webOMR, the web-based clinical applications and electronic health record platform from Beth Israel Deaconess Medical Center. Please note that if it were not for these transactions, we would have reaffirmed the original fiscal year 2015 guidance communicated on December 11, 2014 at our 7th Annual Investor Summit. athenahealth's updated fiscal year 2015 guidance to reflect these transactions is presented below: 

Use of Non-GAAP Financial Measures

In our earnings releases, prepared remarks, conference calls, slide presentations, and webcasts, we 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. Our earnings press releases containing such non-GAAP reconciliations can be found in the Investors section of our web site at www.athenahealth.com.

Conference Call Information

To participate in athenahealth's live conference call and webcast, please dial 877-853-5645 (or 408-940-3868 for international calls) using conference code No. 65581423, or visit the Investors section of our web site at www.athenahealth.com. A replay will be available for one week following the conference call at 855-859-2056 (and 404-537-3406 for international calls) using conference code No. 65581423. A webcast replay will also be archived on our website.

About athenahealth, Inc.

athenahealth is a leading provider of cloud-based services for electronic health records (EHR), revenue cycle management and medical billing, patient engagement, care coordination, and population health management, as well as Epocrates and other point-of-care mobile apps. We connect care and drive meaningful, measurable results for more than 62,000 health care providers in medical practices and health systems nationwide. For more information, please visit www.athenahealth.com.

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, including the updated fiscal year 2015 guidance; statements regarding the benefits of and demand for our service offerings; statements regarding the potential expansion of our network and progress towards building the health care internet; statements regarding our market opportunity; statements regarding changes in the health care industry, including an increased emphasis on coordinated care, and our positioning in regard to those changes; and statements found under our "Reconciliation of Non-GAAP Financial Measures to Comparable GAAP Measures" and "Reconciliation of Non-GAAP Financial Measures to Comparable GAAP Measures for Fiscal Year 2015 Guidance" sections 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 our 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: our fluctuating operating results; our variable sales and implementation cycles, which may result in fluctuations in our quarterly results; risks associated with the acquisition and integration of companies and new technologies to achieve expected synergies, including those related to our ability to successfully integrate the services, offerings, and technologies of Epocrates, RazorInsights, and webOMR and realize the expected benefits; risks associated with our ability to realize the expected benefits from the purchase of the Arsenal on the Charles campus in Watertown, Massachusetts; risks associated with our expectations regarding our 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 we operate and the relative immaturity of the market for our service offerings; and the evolving and complex governmental and regulatory compliance environment in which we and our clients operate. Forward-looking statements may often be identified with words such as "we expect," "we anticipate," "upcoming," "aim," or similar indications of future expectations. These statements are neither promises nor guarantees, and are subject to a variety of risks and uncertainties, many of which are beyond our control, which could cause actual results to differ materially from those contemplated in these forward-looking statements. Existing and prospective investors are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. We undertake 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 us, please see the disclosures contained in our public filings with the Securities and Exchange Commission, available on the Investors section of our website at www.athenahealth.com and on the SEC's website at www.sec.gov. 

Explanation of Non-GAAP Financial Measures

We report our 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 our 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 athenahealth 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 our ongoing business by eliminating certain non-cash expenses and other items that management believes might otherwise make comparisons of our 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 our financial and operational performance and comparing this performance to our 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 intangible assets allocated to direct operating expense, 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 our operational strength and performance of our business and a good measure of our historical operating trends. Moreover, management believes that these measures enable investors and financial analysts to closely monitor and understand changes in our ability to generate income from ongoing business operations.

Management defines "Non-GAAP Adjusted EBITDA" as the sum of GAAP net income (loss) before provision for (benefit from) income taxes, total other (income) expense, stock-based compensation expense, depreciation and amortization, amortization of purchased intangible assets, integration costs, transaction costs, and gain on early termination of lease 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 (loss) before provision for (benefit from) income taxes, total other (income) expense, stock-based compensation expense, amortization of capitalized stock-based compensation related to software development, amortization of purchased intangible assets, integration costs, transaction costs, and gain on early termination of lease 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 (Loss)" as the sum of GAAP net income (loss) before stock-based compensation expense, amortization of capitalized stock-based compensation related to software development, amortization of purchased intangible assets, integration costs, transaction costs, and gain on early termination of lease and any tax impact related to these preceding items, and an adjustment to the tax provision for the non-GAAP tax rate and "Non-GAAP Adjusted Net Income (Loss) per Diluted Share" as Non-GAAP Adjusted Net Income (Loss) divided by weighted average diluted shares outstanding. Management considers all of these non-GAAP financial measures to be important indicators of our operational strength and performance of our business and a good measure of our historical operating trends, in particular the extent to which ongoing operations impact our overall financial performance.

Management excludes or adjusts 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 our business, and also because the total amount of the expenditure is partially outside of our control because it is based on factors such as stock price, volatility, and interest rates, which may be unrelated to our performance during the period in which the expenses are incurred.
   
• Amortization of purchased intangible assets — purchased intangible assets are amortized over their estimated useful lives and generally cannot be changed or influenced by management after the acquisition. Accordingly, this item is not considered by management in making operating decisions. Management does not believe such charges accurately reflect the performance of our ongoing operations for the period in which such charges are incurred.
   
• Integration costs —integration costs are the severance payments and retention bonuses for certain employees relating to the Epocrates acquisition. Accordingly, management believes that such expenses do not have a direct correlation to future business operations, and therefore, these costs are not considered by management in making operating decisions. Management does not believe such charges accurately reflect the performance of our ongoing operations for the period in which such charges are incurred.
   
• Transaction costs — transaction costs are non-recurring costs related to specific transactions. Accordingly, management believes that such expenses do not have a direct correlation to future business operations, and therefore, these costs are not considered by management in making operating decisions. Management does not believe such charges accurately reflect the performance of our ongoing operations for the period in which such charges are incurred.
   
• Gain on early termination of lease — Gain on early termination of lease was a non-recurring gain related to the early termination of the Arsenal on the Charles lease. Accordingly, this gain was not considered by management in making operating decisions, and management believes that this gain does not have a direct correlation to future business operations. Management does not believe such gain accurately reflects the performance of our ongoing operations for the period in which such gain was recorded.
   
• Non-GAAP tax rate — For 2014, we used a non-GAAP tax rate of 40% to normalize the tax impact to our Non-GAAP Adjusted Net Income (Loss) per Diluted Share based on the fact that a relatively small change in pre-tax GAAP income (loss) could result in a volatile GAAP effective tax rate.