athenahealth, Inc. Reports Second Quarter Fiscal Year 2015 Results

Company Grows Network to over 67,000 Providers and Signs Two Academic Medical Centers

Q2 2015 Financial Results

• 21% Revenue Growth Over Second Quarter of 2014
• Non-GAAP Adjusted Operating Income of $22.2 million
• GAAP Net Income of $9.3 million, or $0.24 Per Diluted Share
• Non-GAAP Adjusted Net Income of $12.4 million, or $0.32 Per Diluted Share

WATERTOWN, Mass., July 23, 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 second quarter of fiscal year 2015. We will conduct a conference call tomorrow, Friday, July 24, 2015, at 8:00 a.m. Eastern Time to discuss these results and management's outlook for future financial and operational performance.

• Total revenue for the three months ended June 30, 2015, was $224.7 million, compared to $185.9 million in the same period last year, an increase of 21%.
  
  • Revenue from athenahealth-branded services was $209.1 million, an increase of 23% over $170.3 million for the three months ended June 30, 2014.
     
• Total revenue for the six months ended June 30, 2015, was $431.1 million, compared to $349.0 million in the same period last year, an increase of 24%.
  
  • Revenue from athenahealth-branded services was $401.2 million, an increase of 26% over $318.5 million for the six months ended June 30, 2014.
     
• Grew net new active physicians on athenaCollector® (2,114 physicians added), athenaClinicals® (1,127 physicians added), and athenaCommunicator® (1,670 physicians added) for the three months ended June 30, 2015, compared to athenaCollector (2,023 physicians added), athenaClinicals (1,151 physicians added), and athenaCommunicator (1,807 physicians added) in the same period last year.

"We continue to make progress in building the health care internet and in connecting care across the care continuum in meaningful ways. Today, we connect providers to financial results and clinical outcomes, to their patients, to new innovations, and to each other," said Jonathan Bush, chairman and chief executive officer of athenahealth. "This quarter, we made marked progress across a number of priorities including our work to master the EHR user experience, advance care team coordination, and introduce new innovations across our network. While we have much more to accomplish, our trajectory toward becoming greater and bigger, as well as delivering value that is greater and bigger is established and improving the way health care works in this country."

• For the three months ended June 30, 2015, Non-GAAP Adjusted Gross Margin was 63.3%, compared to 63.0% in the same period last year.
   
• For the three months ended June 30, 2015, Non-GAAP Adjusted Operating Income was $22.2 million, or 9.9% of total revenue, compared to $21.6 million, or 11.6% of total revenue, in the same period last year.
   
• For the three months ended June 30, 2015, GAAP Net Income was $9.3 million, or $0.24 per diluted share, compared to GAAP Net Loss of $2.2 million, or $0.06 per diluted share, in the same period last year.
   
• For the three months ended June 30, 2015, Non-GAAP Adjusted Net Income was $12.4 million, or $0.32 per diluted share, compared to $12.2 million, or $0.32 per diluted share, in the same period last year.

"Our continuous investment in advancing our technology-enabled services and results-oriented model not only puts us with skin in the game to ensure our clients achieve their clinical and financial goals, but it's proven to work and drive our own success," said Kristi Matus, chief financial and administrative officer of athenahealth. "We delivered another strong quarter and remain ahead of internal financial goals through the first half of the year. Second quarter highlights included record bookings performance in our group and small group segments, expansion of our enterprise segment with two academic medical centers, and growth in our network to over 67,000 providers. We are proud of the progress we have made to date and are very encouraged by our ability to continuously move faster, to innovate, and to deliver profitable growth."

Our fiscal year 2015 guidance we released in conjunction with our fourth quarter and full year 2014 earnings call on February 6, 2015, is summarized in the following table:

We are not making any changes to the fiscal year 2015 guidance we released in conjunction with our fourth quarter and full year 2014 earnings call on February 6, 2015. However, based on our year-to-date performance and our current expectations for the second half of 2015, we are providing additional insight into our fiscal year 2015 guidance as follows:

• We expect GAAP Total Revenue to be at or above the mid-point of the $905 million to $925 million guidance range.
   
• We expect Non-GAAP Adjusted Gross Margin to be at or above the mid-point of the 62.5% to 63.5% guidance range.
   
• We expect Non-GAAP Adjusted Operating Income to be at or above the mid-point of the $75 million to $85 million guidance range.
   
• Finally, we expect Non-GAAP Adjusted Net Income per Diluted share to be at or above the mid-point of the $1.10 to $1.20 guidance range.

Please refer to our press release dated February 5, 2015 for a reconciliation of these non-GAAP financial measures to comparable GAAP measures for fiscal year 2015 guidance.

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 condensed consolidated financial statements. Our earnings press releases containing such non-GAAP reconciliations can be found in the Investors section of our website at www.athenahealth.com.

Conference Call Information

To participate in our live conference call and webcast, please dial 877-853-5645 (or 408-940-3868 for international calls) using conference code No. 68777413, or visit the Investors section of our website 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. 68777413. 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 67,000 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 reaffirmed fiscal year 2015 guidance; statements regarding the benefits of our service offerings and demand for our service offerings; statements regarding the expansion of our network, including physician additions to our network; statements regarding developments in our enterprise business and the sales pipeline; statements regarding creation of the health care Internet and connected care; statements regarding our market opportunity; statements regarding the expected value creation from our investments; and statements found under our "Reconciliation of Non-GAAP Financial Measures to Comparable GAAP Measures" section 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; risks associated with our expectations regarding our ability to maintain profitability; the impact of increased sales and marketing and research and development expenditures, including whether increased expansion in revenues is attained and impacts on margins and profitability; 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 and transaction costs, and lease termination costs 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 and transaction costs, and lease termination costs 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" 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 and transaction costs, lease termination costs, and gain on sale of marketable securities 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 per Diluted Share" as Non-GAAP Adjusted Net Income 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 and transaction costs —Integration costs are the severance payments and retention bonuses for certain employees relating to the Razor Insights, LLC acquisition. 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.
   
• Lease termination costs — represents costs to terminate certain lease agreements. Management does not believe such costs accurately reflect the performance of our ongoing operations for the period in which such costs are incurred.
   
• Gain on sale of marketable securities — represents gain on sale of marketable securities. Management does not believe such gains accurately reflect the performance of our ongoing operations for the period in which such gains are reported.
   
• Non-GAAP tax rate — We use 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) in any one period could result in a volatile GAAP effective tax rate.